LLC vs Scorp wages from PEO

Technical topics regarding tax preparation.
#1
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110
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12-Jun-2014 8:13am
Location:
California
Have a client that decided to quit his job and go off on his own. He told me of his plan back in April when I delivered his tax returns. His initial comments that he was planning to become an LLC and that he was going to pay himself wages. At that point I informed him that he could not file a Schedule C since he will be paying himself wages. Once he was ready to form the LLC, I told him to let me know and we could sit and plan. Well, apparently he went ahead and did the LLC and with a help of a "friend" in a similar business, elected to be treated as a corporation. I'll help him elect S status shortly.

I found this out as I just recently had an unrelated brief conversation and found out that his payroll is going through a PEO. This is my first client that is using a PEO for payroll so am a bit unsure as to the treatment of the payments to the PEO as from what I understand, the payments not only include the wages, but also health insurance, employer's portion of payroll taxes and other benefits.

Do I deduct the payments as wages? Seems like I should be putting it as another deduction such as Outsourcing or Outside Services? My assumption is that there would be a matching the W-3 amount to the wages line + officer's compensation amounts or am I giving the IRS too much credit? Being that there will be no W-3 filings since the PEO is filing, I'm thinking there is no wages deduction?

Then that leads to the question regarding the payments to PEOs in the calculation of the QBI deduction. But that's for another day.
 

#2
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724
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22-Sep-2014 9:25am
Location:
Farmington, Michigan
The portion of the payments to the PEO that are for wages should be deducted as wages. The portion of the payments to the PEO for insurance should be deducted as insurance. The portion of the payments to the PEO for payroll taxes should be deducted as payroll taxes. The portion for wages is used as wages in the QBI calculation.
Dave

Taxation is the price we pay for failing to build a civilized society. ~ Mark Skousen
 

#3
Posts:
110
Joined:
12-Jun-2014 8:13am
Location:
California
Thanks, I'll see if there is a full year breakdown available. That would be great for the QBI calculation if the client exceeds the taxable income limit.
 


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