If filing for S-Corp 1120S and the client took a small amount of W2 wages 6K (Gross Income 102K) but profit was 28K after expenses etc. 
 
1. Should I put his W2 wages under Officer Compensation or under salaries and wages (He is the sole shareholder and employee)
2. If owners draw was approx 31K, should I apply at least a 15K distribution 
 
I have read so many different things I am spinning at this point in researching the best route
0 Cheers
Level 15

S corps don't have owner's draw, but they could have distributions.  If he only took 6K in wages, that really doesn't sound like a reasonable wage.  You need to pay a reasonable wage before you can take out distributions.  You really need to determine if you should go back and amend payroll tax returns to show the "draw" as wages, because that's what they were.

ex-AllStar, ex-Lutefisk taste taster, ex-ACME product tester
and ex marks the spot where those rocks and anvils hit me.

Thank you again.

Last year was their first year of profits and towards the end of the year he finally took my advice to get on W2 but it was late in the year. I understand completely and will discuss the determination with the client. But could you answer this for me even for future reference when there is one shareholder who is the only W2 employee do you apply the W2 wages to "Officers Compensation" or to "salaries and Wages" which is the most correct?

 

Thank you.

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0 Cheers
Level 15

Officer compensation.

ex-AllStar, ex-Lutefisk taste taster, ex-ACME product tester
and ex marks the spot where those rocks and anvils hit me.
Level 12

"owners draw was approx 31K, should I apply at least a 15K distribution"

The IRS has the right to determine this was Attempting to avoid payroll taxes, and they can recharacterize this as payroll. And now the client is late with taxes, and will suffer penalties and interest.

Did they want to Fix 2019 payroll? Because it seems it should be $31,000 + $6,000 = $37,000? Unless you can show the person puts in very few business hours.

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