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I own 25% of shares at my company as an officer. We have $3,000 per month in profit. What is my tax liability on Schedule K-1 (1120S) form?Am I incurring this tax liability that I didn't have when I was an employee?


The BIDaWIZ Team's Answer:

An S Corporation is a pass through entity, as such the net income/loss is passed through to the shareholders via the Schedule K-1 and reported on the shareholders's individual tax return. This is referenced in Internal Revenue Code Section 1366 & IRS Publication 542. Given that you are a 25% shareholder, $750 per month or $9,000 per year would be taxable income reported on Line 17 of your Form 1040. You would also complete Part II of your Schedule E to report this figure.
In terms of estimating your tax liability for the $9,000, it will depend on your other income and your tax bracket for the year. If you can share that information as well as your marital status, deductions you claim, we can provide a more precise estimate.
Please note that this income is separate from W-2 employee wages. If you are now an officer, but were just an employee in the past, this would be additional income to you.
References: Internal Revenue Code Section 1366 & IRS Publication 542

The BIDaWIZ Team



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