Basic S-corp question

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Basic S-corp question

Postby cheesepep » Wed Dec 26, 2012 3:58 pm

Let's say that I have a single person S-corp. I make $100,000 a year from this S-corp.

And I also have a side business that I make $15,000 a year. Can I file my taxes claiming $100,000 using the S-corp EIN and the $15,000 using my personal SSN?

I think so, but just want to confirm.
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Re: Basic S-corp question

Postby DSInvestor » Wed Dec 26, 2012 4:11 pm

Your S-Corp files its own tax return and issues owners of the S-Corp K-1 forms. The tax return for the S-Corp will look at gross income, expenses (salary, rent, phones, utilities, insurance) and net income. The net income of the S-Corp flows to the owners via the K-1. The K-1 is included the personal tax returns of the S-Corp owners. If your S-Corp pays you a salary, you will be issued a W-2 form just like you worked for a company.

If you have other self employed income that will be against your SSN, you're sole proprietor. Sole proprietor income is handled by Schedule C on your personal tax return.

Do you work with a tax advisor or CPA to prepare your tax returns.
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Re: Basic S-corp question

Postby Jack » Wed Dec 26, 2012 4:19 pm

Your S-corp has its own EIN and files its own tax return using form 1120S with the EIN.

You take money out of the S-corp in two ways.
1. The S-corp pays you wages and issues you a W-2 with your SSN just like any other employer.
2. The S-corp pays you dividends and issues you a K-1 with your SSN.

If you have another business that is not an S-corp, that is, a sole proprietorship then you report those earnings on a Schedule C, using your SSN, filed with your regular 1040 .

-- Oh, I see that DSInvestor pretty much covered it.
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Re: Basic S-corp question

Postby cheesepep » Wed Dec 26, 2012 4:55 pm

Ok, thanks for the reply.

I am a little confused, so please bear with me.

I have not formed the S-corp yet (in process), but currently, I am an independent contractor who gets paid every month from company A. Now, assume I form the S-corp, and tell company A my EIN for the S-corp (before just using my SSN), then how will I get a W-2?

I am assuming that I will get a 1099-Misc from company A (never been a contractor before, first time!).

How can I get a W-2 from my single-person S-corp and dividends if I am an independent contractor?

This is a single person S-corp so I am the boss and employer.
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Re: Basic S-corp question

Postby SteveKL » Wed Dec 26, 2012 5:20 pm

cheesepep wrote:How can I get a W-2 from my single-person S-corp and dividends if I am an independent contractor


You will only receive a W-2 from your S-corp if, A) it pays you wages; and B) you or your S-corp payroll preparer issues the W-2. As a previous poster said, their are two ways to extract earnings from an S-corp. Only one way (wage income) results in a W-2. The other (owner draws against equity) does not.

Be careful as there are IRS rules about taking $$ out of an S-corp in excess of retained earnings. Your tax adviser will have this nailed.
Last edited by SteveKL on Wed Dec 26, 2012 5:54 pm, edited 1 time in total.
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Re: Basic S-corp question

Postby Rob5TCP » Wed Dec 26, 2012 5:21 pm

I am a sub s corp. I take out income in two ways. One: periodically I run payroll and the total of payroll goes to a W2 that I produce the end of the year.
I also take distributions which come out as excess profits or dividends. These are a separate form that my accountant produces.
I choose to run payroll because it does automatic withholding calculations. I run one each quarter.
I estimate what the profit is and take 75% or so in the form of payroll (depending on the cash
balance).
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Re: Basic S-corp question

Postby Jack » Wed Dec 26, 2012 7:46 pm

There are two general ways to do contract work for a company:

1. You can be a direct contractor under your SSN. You file a W-4 with the client company which identifies you and the company then reports all payments at the end of the year on a 1099-MISC. You report your income on Schedule C as a sole proprietor.

2. Your S-corp can contract with the client company under your S-corp EIN. In this case, the company is contracting and paying the S-corp, not you, and is not generally required to file a 1099-MISC since it is just a payment between two corporations. Your S-corp then sends you to the client company as an employee of the S-corp.

Since you are working for your S-corp, the S-corp must pay you a wage, withhold payroll taxes, and file a W-2 for your wages. The S-corp may also pay a dividend to you which requires filing a K-1.

Note that the S-corp is a separate legal entity from you. That is the whole point. You work for the S-corp and are hired out as an employee of the S-corp. You may also be the only employee of the S-corp and the boss of the S-corp, but you are still an employee.

If you are just doing hourly contract work for a company, you may make your life a lot simpler by just skipping the whole S-corp thing and just work directly as a sole proprietorship as in case 1 above. You only need to form an S-corp if your client insists on dealing with a corporation rather than an individual contractor. You should check with your client and see if direct 1099 contracting is okay and save yourself a lot of grief, time and expense by avoiding an S-corp.
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Re: Basic S-corp question

Postby cheesepep » Wed Dec 26, 2012 7:51 pm

Thanks for all of the replies. I spoke to a CPA and got my issues resolved.
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Re: Basic S-corp question

Postby LadyGeek » Thu Dec 27, 2012 6:44 pm

This thread is now in the Personal Finance (Not Investing) forum (taxes).
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
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