What can I do if the client is an s corporation, but failed to maintain a payroll?
If your client is an S corporation but failed to maintain a payroll, it's important to address the issue promptly as S corporations are required to pay a reasonable salary to any shareholder-employee in exchange for services rendered to the corporation. Here are the steps you should consider: 1. **Assess the Situation**: Determine the extent of the issue, including how long the S corporation has been without a payroll and the amount of reasonable compensation that should have been paid to the shareholder-employee(s). 2. **Calculate Reasonable Compensation**: Estimate what the shareholder-employee should have been paid based on their duties, the time spent on those duties, and what comparable businesses pay for similar services. 3. **Set Up Payroll**: Immediately set up a payroll system to start paying the shareholder-employee(s) going forward. This includes registering with the IRS and state tax agencies, obtaining an Employer Identification Number (EIN) if not already done, and ensuring compliance with all payroll tax requirements. 4. **Pay Back Pay**: Issue back pay to the shareholder-employee(s) for the reasonable compensation that was missed. This should be done through the payroll system to properly account for taxes and withholdings. 5. **File Corrected Tax Returns**: If necessary, file amended tax returns (Form 1120S for the S corporation and Form 1040 for the shareholder-employee) to report the compensation and withholdings correctly. 6. **Payroll Taxes**: Calculate and pay any payroll taxes that are
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