How can 1120 corp pay to its owner?


Joined
Apr 11, 2016
Messages
14
Reaction score
0
Country
Ukraine
My client, 1120 C-Corp, registered in Delaware, but all tream live in Ukraine (including CEO, who is 100% shareholder). Company pays $5000 per month to its CEO/owner as contractor and concidering to pay him every month difference between revenue and expenses, how can they do so? Can they pay CEO this second payment as contractor as well or should they pay it as dividends? If pay as contractor, than net profit will be equal to 0 each month, is this OK from tax perpective?
 
Ad

Advertisements

Joined
Aug 23, 2022
Messages
20
Reaction score
2
Country
United States
A C-corp pays a shareholder/officer in 2 ways: 1099-Div and payroll. And if he's actively employed full time you better make sure he's getting an adequate W2 (and paying payroll taxes) just like any other employee. (Failure to do so would be the same problem if he was a regular employee and you paid him on a 1099NEC. You're effectively avoiding payroll taxes and other requirements.) And if the Corp has dividends because there's profit after his payroll, he gets a 1099Div.

In general giving a shareholder a 1099-NEC is inappropriate (I assume that when you say 1099 you mean 1099 NEC). Unless he's really just a passive shareholder and doing some business consulting for them on the side.. but you said he's CEO. The other exception would be he's getting a W2 as the CEO but he has a separate side business that cleans carpets... and he get's paid separately to clean the carpets.. then a 1099 NEC is appropriate.

But in general: W2. And over and above his "reasonable compensation" (as the code states) he may distribute any further profits as a 1099Div.
 
Last edited:

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top