Has your Coeur d’ Alene S corporation been paying you compensation on Form 1099-MISC?
By having your CDA S corporation pay you on just a 1099, you have the following three issues:
- Your Idaho S corporation violates tax law because it fails to pay you W-2 wages for the services you performed for the corporation in Coeur d’ Alene.
- The IRS can reassign your S corporation’s 1099 payments as wages and hand the S corporation a hefty tax bill consisting of back payroll taxes, interest, and penalties.
- You are likely to have deductible expenses with the wrong entity. Coeur d’ Alene Tax law requires that the expense deduction belong to the entity that incurred the expenses and earned the related income.
If you pay yourself on both a 1099 and a W-2, you also have tax issues:
- You likely pay several thousand dollars more in Idaho self-employment tax than required.
- You muddy the water when it comes to Idaho business deductions. It may be very unclear whether you should deduct the expenses on Schedule C or on the S corporation return. This confusion can cause you to claim the expenses on the wrong tax returns and can enable the IRS to deny your valuable Idaho business deductions. Find a CDA Accountant or CDA CPA when dealing with these IRS Issues.