C corp paid its 100% shareholder by 1099-misc

I knew that is not correct

Can I do this:

1. amended his 1099-misc to zero.
2. paid tax on C corp level
3.paid dividend to him.

The tax liability seemingly is not a big difference ( 15.3 % FICA vs 21% corp tax). The dividend will be taxed as ordinary but with a smaller amount than the commission. so overall tax liab will have not much difference.

but dividend would be overpaid, can I just treat this overpaid portion as loan to the shareholder?
Thanks

By "overpaid" do you mean a dividend of more than income after tax?

yes, for now , he paid himself 250K. 250K *21%, so he actually could be paid himself less than 200K.

another question, is OK file S corp election for 2018 return? if so, need to file as paper?

I don't think you can just re-cast it as a dividend. If the intent was a commission, or more likely should have been W-2 payment, from your facts it seems you'd leave it lone for now and do it right going forward. But when the entire income is paid out as a 1099-MISC, all to the 100% shareholder, you'd have a reasonable-compensation issue too (i.e., too much). Finally, in direct answer to the "overpaid", I also don't think you can just make it a loan. It's a dividend plus a return of capital to the extent of his basis plus a capital gain if there is no basis left.

Doesn't 199A come into consideration here?

Your S corp question throws a new light on it. Someone else.

Rosie, you need to file a 2553 to request S Corp status. Also, be careful about the 1374 Built In Gains Tax on assets when you switch from a C Corp to an S Corp. I just spent the whole day working on one client who made the C to S election this year, they have a lot of assets and I needed to set up a schedule so we can track BIG tax going forward. My sense is still that 199A will be more of a benefit to them going forward, but what a headache today was. I didn't clearly understand how BIG worked until now, if there are a lot of assets, you should give some thought to that.

Thanks, NIlodop , I decided not to take this client since he wants to keep the way he did.

actionbsns, thank you, that is a very good reminder, I have other clients who want to switch from C to S too, I will keep the BIG in my mind.

I've been seeing this more often where C Corp and even S Corp issues 1099Misc to owner.

Have one that just came a across my desk. In reveiwing 2016 & 2017. C Corp paid owner and sposue about 50% in W2 wages and 50% in 1099-misc reported on a Sch C essentially zeroing out income on C Corp. Probably won't make much of a difference going forward with lower C Corp rate but should I push to amend priors or just advise them and do it right going forward.? What say you?

Maybe also consider switching to S Corp but got to look at BIG too...

A corporation officer is a statutory employee and per IRS must be paid a reasonable salary. You should gross up enough of the 1099 to a reasonable salary. The company will owe FICA, FUTA, state employment tax and workers comp insurance.

Got another one. This one prepared by H&R Block.

Issued 1099's to corporate officers and labled it officer compensation but no payroll.

Then went ahead and put it their 1040 as a Sch C.

What is going on. Did they all take the same Tax Savings seminar?

I have one that the S Corp paid the shareholder nothing for the past few years. Shareholder is a Doctor, so technically, he can be paid via 1099, and put the income on schedule C. But they did not even do that. I am wondering if it would be a good idea to go ahead and issue the 1099 to give him Self Employment taxable income on his schedule C, so that he pays in his Social Security and Medicare taxes? This would reduce any audit correction issues if he is audited for 2018. Does anybody agree with this route?

In 2019, going forward, we are doing payroll. We just don't want to file 941, etc. late, because of all of the penalties.

Also, he can still do SEP on his 1040.

Thanks for reading.

Most of us have agreed that you do what you gotta for one year, then get them on payroll.....I'd do as you suggest.

Thank you JR1.