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K-1 impact on personal 1040

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Level 1

Hello, I have a bit complicated situation:

Client has a K-1 from 1120-S with negative balance on line 1 Ordinary business income (loss) of ($50,000).  He also has an officer compensation of $70,000, which i entered in Other Income since he didn't 1099 it. 

The question is shouldn't the K-1 loss of ($50,000) be deduct from the $70,000 and leave a balance of $20,000 as income?? 

In his personal 1040 form, the K-1 loss of $50,000 is not reflecting.  It only shows the $70,000 income that he has to pay taxes on.  

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5 Replies 5
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Level 12

Let's examine this part: "since he didn't 1099 it."

When you work for an S Corp, you are an Employee and get paid through payroll and get a W2.

If you are a shareholder, you never get a 1099-M from your own entity.

All of which means this: "The question is shouldn't the K-1 loss of ($50,000) be deduct from the $70,000 and leave a balance of $20,000 as income??"

Likely is not the right question to be asking. It seems the 1120S might need to be amended and payroll for 2019 needs to be fixed.

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Level 1

Thank you for your response.  

Since I have to work with what i am given, i have to figure out the best case to prepare his taxes. 

I can not go back to him and say, you have to go back and convert the $70,000 cash withdrawal  into payroll and issue yourself 2019 W-2.   I can ask him to do that moving forward.  

Any other suggestions? 

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Level 15

"I can not go back to him and say, you have to go back and convert the $70,000 cash withdrawal  into payroll and issue yourself 2019 W-2."

You could have last December when you first asked about the situation... just sayin'

https://proconnect.intuit.com/community/proseries-discussions/discussion/yes-i-prepared-the-1120-s-a...

And actually, yes you CAN ask him to go back and convert the $70,000 cash withdrawal  into payroll and issue yourself 2019 W-2.  The pain of doing it the right way should get his attention.

You can also decline to prepare the incorrect returns

Former Chump... umm.... AllStar.
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Level 12

"Any other suggestions?'

Well, you can both wait until the IRS "asks" for this to be done. Of course, it's going to cost a lot more, the longer you wait.

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"Level Up" is a gaming function, not a real life function.
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Level 11

A cash withdrawal to an owner/employee is not deductible, so the company profit is really 20k. That should be on the k1. Have the preparer fix it.

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