Why would you be choosing to take a formal 'salary' if it is an LLC or other sole proprietorship-type setup? I see no advantages - and lots of disadvantages -- like having to file these additional forms. Just curious.
Is the small business incorporated? And, if so, is it a C-corporation or an S-corporation?
A C-corporation is a regular corporation which has its own tax liability separate from the shareholders of the corporation. An S-Corporation is a Small Business Corporation, which is treated as a flow-through entity. That is, the corporation itself does not usually pay taxes on its income. Instead, the income flows through to the shareholders, who pay taxes on the income. An S-corporation is taxed in a manner similar to a partnership.
In either case, it is not unusual for the corporation to treat the shareholders who work in the business as employees, and file and pay employment taxes on the wages paid to the shareholders-employees (federal, state, and local employment taxes). An alternative is for the shareholders of an S-Corporation to receive cash distributions (known as guaranteed payments), and for the shareholders to make quarterly estimated payments related to these cash distributions. The cash distributions may be subject to federal, state, and local income taxes, and may be subject to federal self-employment tax. At year-end, each shareholder's income would include the guaranteed payents he received, plus his share of the S-Corporation's net income for the year. The S-Corporation is allowed a deduction for all the guaranteed payments it makes to the shareholders, thus insuring that these payments are not taxed twice.
If the business is not incorporated, then it would be unusual for a sole proprietor to treat himself as an employee, and withhold taxes on his cash withdrawls from the business. Instead, he usually makes quarterly estimated payments on Form 1040-ES during the year based on his quarterly net income from the business. The cash withdrawls are usually treated as reductions in the owner's capital account, and not treated as income. On the other hand, the cash withdrawls are not allowed as a business deduction for the business. This insures that the cash withdrawls are included within the net income of the business and therefore taxed as part of the net income of the business.
Is the small business incorporated? And, if so, is it a C-corporation or an S-corporation? A C-corporation is a regular corporation which has its own tax liability separate from the shareholders of the corporation. An S-Corporation is a Small Business Corporation, which is treated as a flow-through entity. That is, the corporation itself does not usually pay taxes on its income. Instead, the income flows through to the shareholders, who pay taxes on the income. An S-corporation is taxed in a manner similar to a partnership. In either case, it is not unusual for the corporation to treat the shareholders who work in the business as employees, and file and pay employment taxes on the wages paid to the shareholders-employees (federal, state, and local employment taxes). An alternative is for the shareholders of an S-Corporation to receive cash distributions (known as guaranteed payments), and for the shareholders to make quarterly estimated payments related to these cash distributions. The cash distributions may be subject to federal, state, and local income taxes, and may be subject to federal self-employment tax. At year-end, each shareholder's income would include the guaranteed payents he received, plus his share of the S-Corporation's net income for the year. The S-Corporation is allowed a deduction for all the guaranteed payments it makes to the shareholders, thus insuring that these payments are not taxed twice. If the business is not incorporated, then it would be unusual for a sole proprietor to treat himself as an employee, and withhold taxes on his cash withdrawls from the business. Instead, he usually makes quarterly estimated payments on Form 1040-ES during the year based on his quarterly net income from the business. The cash withdrawls are usually treated as reductions in the owner's capital account, and not treated as income. On the other hand, the cash withdrawls are not allowed as a business deduction for the business. This insures that the cash withdrawls are included within the net income of the business and therefore taxed as part of the net income of the business.
I have an S-Corp of which I am the sole employee. I file form 941 on a quarterly basis. Iam I required to also file a W-2 ?
I have an S-Corp of which I am the sole employee. I file form 941 on a quarterly basis. Iam I required to also file a W-2 ?
Yes, you will need to file a Form W2 with transmittal W3. The SSA and the IRS reconcile the W3 against the quarterly 941s.You can file W2s online for free at www.socialsecurity.gov/employer if you register there ahead of time.
If you are the only employee, you might be able to file Form 944 yearly instead of 941s quarterly. Also see if you have to file Form 940 forFederal Unemployment, or call IRS at 800-829-3903.
Yes, you will need to file a Form W2 with transmittal W3. The SSA and the IRS reconcile the W3 against the quarterly 941s.You can file W2s online for free at www.socialsecurity.gov/employer if you register there ahead of time.If you are the only employee, you might be able to file Form 944 yearly instead of 941s quarterly. Also see if you have to file Form 940 forFederal Unemployment, or call IRS at 800-829-3903.
CharlotteW | Former Moderator |
3/4/2009 - 12:13 pm
Show Replied Text…
Good to know. For me, I do web consulting and am an S-Corp. What are my 941 obligations?
Hello Charles.
Detailed instructions for Form 941 are available on the IRS website and provide a wealth of helpful information including how to complete the form line by line, and when and where to file it.
I also suggest checking out the IRS website for additional information on S-Corporations.
I hope this helps!
Hello Charles. Detailed instructions for Form 941 are available on the IRS website and provide a wealth of helpful information including how to complete the form line by line, and when and where to file it. I also suggest checking out the IRS website for additional information on S-Corporations. I hope this helps!
If you are witholding taxes and the FICA and then you need to file the 941. Depending how much these amounts are you may be required to a 944 instead of a 941. Having said that if you are paying yourself monthly you will most probably need to file a 941 every quarter. An S-Corporation shareholder is expected to take a reasonable salary (W-2 income) from the business. Further, if you are using an accounting software to do your payroll then there is a pretty good chance that it will have these forms built right in the program and the program will fill them in autmotically. You will need to print, sign and mail them in with the appropriate payment. If you need further assistance you can email me at accountingservicesinc@comcast.net
Message Edited by JamieD on 06-19-2009 02:50 PM
JimTaxes | Performer | 9/4/2010 - 1:10 pm
lghancock | Performer | 3/26/2009 - 7:08 pm
ccf | Window Shopper | 6/8/2009 - 11:09 am
AnneHu | Window Shopper | 6/8/2009 - 2:25 pm
ccf | Window Shopper | 6/19/2009 - 12:57 pm
ITsTaxTime | Performer | 2/18/2009 - 12:04 pm
CharlesS | Creator | 2/19/2009 - 9:27 am
CharlotteW | Former Moderator | 3/4/2009 - 12:13 pm
accountingservi | Window Shopper | 3/14/2009 - 12:23 pm
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