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
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