Carmen Asks:
When an entity pays out “compensation of officers” is that shown as wage income to the officers? I don’t feel that I have been able to directly correlate those items, and feel they could be different. If a shareholder/member/partner is paid $50,000 in officer compensation, should that individual’s personal 1040 show that same $50,000 in wage income? If not, is that something we need to manually enter to offset that expense of the entity?
Answer:
COMP OF OFFICERS
As to your question, the compensation of officers on the entity return can be different than the wages reported on the 1040 for several reasons:
- The entity return is on a fiscal year other than a calendar year. 1040 wages are based on wages received during the calendar year. As long as they are not vastly different, I do not sweat. It is true, however, that eliminations will not be the same number so your elimination column will not net to zero. (Speaking of which, your elimination column will also not net to zero if you have entered the entity taxable income from 1040 Schedule E in the personal analysis. There is no analogous offset on the entity. Make sense?)
- The officer has 401k or other deductions from their wages that reduce the amount taxable in the 1040. If you have the W-2, you can see the medicare wages which would tie back to a calendar year entity return. Again, since you plan to eliminate both, I would not be concerned as long as it makes sense.
Bottom line, if the difference makes sense because of fiscal vs calendar year or non-taxed wages due to retirement deductions, no need to pursue if further. Eliminate both and continue on.
