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Johnstonablc
Level 1

Owner equity

Paid taxes on a salary that was never taken. Do I enter this as equity or can I take it from the amount used as owner disbursement?

Thanks.

9 Comments 9
john-pero
Community Champion

Owner equity

If you are an S or C corp you have to receive, at least on paper and pay taxes on what the IRS refers to as a reasonable wage. This has to come before any distribution of what are loosely but somewhat inaccurately referred to as dividends.

 

If you choose to withdraw the net pay or not is up to you so if you do leave the net pay in the company you are effectively making an equity contribution. In the case of a corporation you are buying more stock or increasing the value of the stock you own

 

Oh, and if there is no money to pay salary then there is no money to disburse. Salary must come before distribution. Best bet also is to cut an actual check and endorse it back to the company for a paper trail

Johnstonablc1
Level 1

Owner equity

It is an S corp. We paid taxes on a salary to two corp officers. We never took the money out of the account. Can I take from the owner disbursement, this would bring down the disbursement quite a bit. Just want to make sure it is a good way to do this. 

Thanks

Johnstonablc1
Level 1

Owner equity

Also, how would I do this in qb? Would it have to be a journal entry, or is there an easier way to do it.

Thanks

qbteachmt
Level 15

Owner equity

You are simply stating the Banking never happened: "We paid taxes on a salary to two corp officers. We never took the money out of the account."

 

You don't Take it as distribution; you already should have it as Wage Expense and tax expense, and that flows to liability and is part of Banking for that paydate.

 

When you "ran payroll" and paid taxes, what happened to the Takehome? There would be paycheck entries somewhere, that are the math details of all the data you used for reporting and tax payments.

 

Are you calculating payroll manually? We need more details.

john-pero
Community Champion

Owner equity


@Johnstonablc1 wrote:

Also, how would I do this in qb? Would it have to be a journal entry, or is there an easier way to do it.

Thanks


Easy? Are you using any type of payroll program? Obviously something since you calculated the (proper?) taxes. In a paycheck it is easy enough to enter a payroll deduction that nets the check to zero and the deduction is posted to each partner's equity contribution account.

 

Or you can "write" the paychecks from a clearing bank type account and them deposit teh equivalent of net pay from the equity contribution accounts.

 

If you are not using QB payroll you can still manually "do" payroll in QB Desktop but not so easily in QBO, although using the steps for desktop and setting employees up as vendors (if you start to enter employee names in QBO it will demand a subscription if I am not mistaken). Biggest thing is to follow the guidelines and rules in Pub 15 (Circular E) https://quickbooks.intuit.com/community/Employees-and-payroll-taxes/Set-up-payroll-without-a-subscri...

qbteachmt
Level 15

Owner equity

The point is, there is nothing to Compute Taxes against, if a paycheck never got issued.

 

Or, a paycheck is sitting in the Banking in the bookkeeping, but never got handed out, so it is never cleared and the Banking was not done.

 

Or, there is the manual computation of what someone thought needed to be computed and paid, but there actually is no provision for payroll under the tax regulations that apply.

 

We don't have enough information.

Johnstonablc1
Level 1

Owner equity

Thank you for your answer. 

I am not sure where I saw you could take it out of the distributions to lower your owner distribution. 

We have closed this business as of December 31, 2018.

 

I need to find out if since the company no longer exists, if I can bring down the distributions to us since we never took our equity back. This is the only way I can think of doing this.

 

Johnstonablc1
Level 1

Owner equity

I guess I can make sure it goes into employee wages as well.

qbteachmt
Level 15

Owner equity

"I can make sure it goes into employee wages as well."

As well as What other thing? You have not answered the questions asked here.

 

Let's review: How did you decide there is some tax to pay, and what made you consider it was Payroll, and how did any of this get entered into the bookkeeping, which parts and pieces?

 

What is the Business Entity Type?

 

Who is the person and how are they related to the Business Entity?

 

And what happened with the entry of the paycheck, which is supposed to be part of payroll processing?

 

Let me try this example: "We just did some math and paid from the business and called it Taxes, and sent it in as 1040 ES." Or, "We sent it in with 941." Or, "we have a person that computed payroll and told us how much to send to Feds and State, and they file the forms, but we never issued the actual takehome check."

 

We need Details. We cannot figure out What you did, that isn't complete.

 

No, you cannot take Distribution, now. You have a Payroll situation to resolve.

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