My company is in financial hardship and is going to have a 3rd partner buy in. The 2 original partners each have been taking advancements as part of their weekly salaries so on our books this is outstanding debts to both partners which at their discretion they will be given an equivalent of a 1099 and pay the taxes on it. The new partner seems to think this could be given as dividends which would lessen the tax on what they would owe.
If this is correct how could it be implemented company and accounting wise? What would the partners owe as for taxes? Does this benefit the new partner? Is there a benefit to the company to handle it as dividends?

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Originally Posted by bratbroo

my company is in financial hardship and is going to have a 3rd partner buy in. The 2 original partners each have been taking advancements as part of their weekly salaries so on our books this is outstanding debts to both partners which at their discretion they will be given an equivalent of a 1099 and pay the taxes on it. The new partner seems to think this could be given as dividends which would lessen the tax on what they would owe.
If this is correct how could it be implemented company and accounting wise? what would the partners owe as for taxes? does this benefit the new partner? Is there a benefit to the company to handle it as dividends?

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Cannot indiscrimatley reclassify salaries as dividends. The company should have an agreement as to officers compensation. If they want over and above as a dividend, you must have current year's earning to support the dividend. Salalries paid to partners should not be in 1099 form but as w-2. If it is indeed a partnership, the net income of the company will be distributed to the partners in accordance with their agreement. Such
Distribution will be taxed as ordianry income subject to payroll taxes.