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Tax/legal question: I'm a 50% shareholder in a S-corp. The S-corp got 1099 income of $8K last year. Is this taxable to me?

Westminster, CA |

The S-corp received a 1099-MISC from one of our clients, showing that it received about $8K from that client in 2013.

I'm doing my personal tax return now, and I'm basically wondering if I have to include the money paid to the S-corp (i.e., the amount on the 1099) on my personal return and pay taxes on it. The S-corp already filed its tax return and ran a small loss last year, if that matters.

Thanks for any help.

Attorney Answers 3

Posted

You do not report S-Corp income directly on your personal return. Instead, the income is taken on the S-Corp's return. Your share of share of S-Corp income, gain and loss is shown on the K-1 issued to you by the S-Corp. If the $8k was not already considered in the S-Corp return you are supposed to amend the 1120-S, and issue amended K-1s to each shareholder. Yes, it is a bit of a bother, but if you wait until you get the IRS letter in August, you will have to do it then; and, amend you own 1040 by reason of the amended K-1. Life is simpler if you clean it up now. Your CPA can take care of this for you.

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Posted

An S corp is a flow thru entity. that means that it reports all income and expenses and then divvies up the net profit or loss to each shareholder based on their percentage ownership in the company. There are many other nuances involved depending on the type of income, how you and the other owners are taking the money out of the business and more. I suggest you talk to a tax attorney or cpa to handle this correctly and avoid IRS issues.

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Posted

The correct approach is to amend your corporate tax return and report teh additonal income from the 1099.

Good Luck

THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court.

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