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what to do if a Schedule C filer takes wages and receives a W-2

Linda M
Level 2

Schedule C filer paid himself wages all year and received a W-2 from his payroll company. I know this isn't allowed, so what do I do as far as reporting (or not reporting) it goes?

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13 Replies 13
IRonMaN
Level 15

If it was earlier in the year, I would say amend the W-2 and 941s and file the schedule C correctly.  On October 15th I would probably be tempted to say screw it and file the return as is and tell the client to not do that no more.

ACME Taxes, Tattoos, Tires and Tasmanian Devils - one free devil with every return.
Just-Lisa-Now-
Level 15
Level 15
^^^^ this!

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
TaxGuyBill
Level 15

@IRonMaN wrote:

  On October 15th I would probably be tempted to say screw it and file the return as is and tell the client to not do that no more.


 

In my opinion, if a client is (1) stupid enough to do that without consulting a tax professional and (2) stupid enough to wait until October to file their tax return, they deserve any penalties involved with filing late.   🙂

Linda M
Level 2

If all people were as smart as us, who would be the garbage men?

 

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TaxGuyBill
Level 15

@Linda M wrote:

If all people were as smart as us, who would be the garbage men?


 

They don't need to be smart, they just need to have common sense.  The taxpayer should do either do deep research or consult a professional.

[Edited for clarity]

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dkh
Level 12

You are referring to the taxpayer not the OP when you say  do deep research or consult a professional - right?

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TaxGuyBill
Level 15

@dkh wrote:

You are referring to the taxpayer not the OP when you say  do deep research or consult a professional - right?


Yes.  Sorry if that was unclear.

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Linda M
Level 2

I was almost tempted to do that, but didn't. 

I didn't include the wages on the 1040 or Schedule C. The payroll company is aware of the issue and will go back and amend the forms to negate his payroll.  I'll send the correct documentation to IRS when I get it.

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BobKamman
Level 15

How do you know he's a Schedule C filer?  Is that how he filed in 2019?  Is this a new business?  Did someone else help him set up an LLC electing to be taxed as an S Corp, and then he forgot what they said about filing an 1120-S?  

I miss Paul Harvey, and if you're old enough to understand that reference, we should both probably be retired.  

If Congress paid attention to anyone but big contributors, I'd write them suggesting they enact legislation to allow self-employed people to do this.  It would solve a lot of collection problems that IRS must deal with now.  

Linda M
Level 2

Hi Bob,

Yes, he filed Schedule C last year. I have no clue why he put himself on payroll or why the payroll company allowed it. But if he wants to take a paycheck, I'll have to file for an entity reclassification for him.

Thanks for taking the time to respond. I didn't know who Paul Harvey was until I looked him up. I must be a little younger than you, but probably not that far behind 🙂

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BobKamman
Level 15

Paul Harvey had a daily radio newscast, but was also known for a feature called "The Rest of the Story," which featured a surprise ending that was supposed to leave you guessing until all the facts were narrated.  There are a lot of questions asked here that make me want to hear "The Rest of the Story."

dkh
Level 12

I loved Paul Harvey.    I'm going to tell my family I can retire now.... Bob said so.

BobKamman
Level 15

@dkh On the other hand, Paul Harvey worked until his death at age 90.  He was a longtime pilot, so probably would have jumped at the opportunity of a space trip, like 90-year-old William Shatner.