If you are an S corporation or an LLC taxed as an S corporation, and you have a total revenue of $500,000 or more in 2020, you need to complete form 1125-E to figure out compensation paid to your officers and attached it to your form 1120S.
What do you include in your total revenue to determine whether you should file Form 1125-E?
Total the following incomes:
Form 1120S line 1a from page 1: Gross receipts or sale from your trade or business
Form 1120S page 1 line 4: Net Gain or loss from Sales of Business Property Form 4797 line 17
Form 1120S page 1 line 5: Other income or loss
Schedule K Form 1120S Line 3a
Form 1120S Schedule K Line 4
Form 1120S Schedule K line 5a
Form 1120S Schedule K Line 6
Schedule K Line 7
Schedule K Line 8a
Schedule K Line 9
Schedule K line 10
Income reported on Form 8825 Rental Property Line 2
Income from Form 8825 Line 19
Income from Form 8825 Line 20a: Net income from rental real estate.
Line 1a: enter the name of your S corporation officers.
Line 1b: their SSN
Line 1c: enter the time each officer spent on the business in percentage.
1 f: enter each officer’s salary including commissions, bonuses, fringe benefits paid to officers who own more than 2% of the company.
If you don’t have a software to track time worked on your business you could take a look at our Daily Work Activity Spreadsheet.
Line 3: If you include any compensation paid to an officer on Form 1125-A Cost of Goods Sold Line 3.
Line 4: Line 2-Line 3: The amount from Line 4 should be entered on Line 7 of Form 1120S page 1. Form 1125-E should be attached to Form 1120S.
How to figure out the compensation paid to officers if your S Corporation earned a gross receipts of $500,000 in 2020?
The video below explains what you should include in your total receipts.
Daily Work Activity Log Excel Template
Track your daily work activities in your business and increase your work productivity.
2020 Federal Tax Forms and Instructions
Small Business Group Session-Quarter 2
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