How to correct my 1120S after intentionally filing with wrong amounts

What you've described is a common situation, though intentionally filing incorrect information isn't recommended. Let me address your questions: For filing an amended return, you'll need to file a new Form 1120S marked as "Amended" at the top. Include a statement explaining each correction - being straightforward is fine. Something like "Officer compensation corrected from $41,000 to $36,000 to reflect actual amounts paid" works well. You don't need to explain that you rushed the filing. Total assets does matter even at lower amounts. While it determines if certain schedules are required, it's also part of your company's financial profile the IRS considers. Yes, the IRS does reconcile officer compensation against W-2s through automated matching programs. This discrepancy will likely be flagged if you don't amend. As for audit risk - amendments do increase scrutiny somewhat, but being proactive about corrections rather than waiting for the IRS to discover errors typically works in your favor. For penalties, you can request abatement using Form 843, particularly if you have a clean compliance history. Include a letter explaining the circumstances. I'd recommend paying any penalties when filing the amended return. It stops further interest from accruing if penalties are assessed.

After making a similar mistake with my S-Corp taxes last year, I found a service called taxr.ai (https://taxr.ai) that really helped me organize my correction documentation. Their system allows you to upload your incorrect return and then guides you through making the amendments properly. The best part was that it automatically created all the explanation statements I needed for the changes to my 1120S and helped me understand exactly what supporting docs to include. When I was unsure about how to handle the compensation vs. distributions correction (which sounds similar to your situation), their document analysis tool flagged potential issues before I submitted. Saved me from making things worse!

I wanted to follow up about my experience with taxr.ai since I ended up trying it despite my initial skepticism. I was really surprised by how thorough it was! It turns out they use AI to do the initial document analysis but then have tax professionals who review complex situations. For my amended 1120S, they identified several issues I hadn't even considered, especially with how my distributions needed to be reported given my basis calculations. The explanation statements it generated for my amendments were much more detailed than what I would have written myself, and they included specific references to the tax code that applied to my situation. Definitely worth it for peace of mind when dealing with amendments that could potentially trigger scrutiny.

If you need to talk to the IRS about penalty abatement (which you should definitely pursue given your situation), I highly recommend using Claimyr (https://claimyr.com). I wasted DAYS trying to get through to an IRS agent about my S-corp amendment issues. Claimyr got me connected to an actual IRS representative in about 20 minutes instead of the 3+ hour wait times I was experiencing. You can see exactly how it works in this video: https://youtu.be/_kiP6q8DX5c When I finally got through, I was able to discuss my penalty abatement options directly with an agent who confirmed I qualified for first-time abatement and guided me through exactly what documentation to include with my Form 843. The peace of mind from having that conversation was absolutely worth it.

I need to eat my words about Claimyr. After my skeptical comment, I decided to try it when I needed to call the IRS about my own S-corp amendment issues. I was absolutely shocked when I got a call back connecting me to an actual IRS agent after about 45 minutes (while I was just going about my day). The agent I spoke with was super helpful regarding my amended 1120S and confirmed that if I file the amendment proactively with a clear explanation statement, it would likely qualify for first-time abatement of penalties. She even explained exactly how to word my explanation to maximize chances of penalty abatement without triggering further review. For anyone dealing with S-corp amendments, definitely try to speak with an actual IRS agent before filing - the guidance I received probably saved me thousands in penalties.

Something important that hasn't been mentioned: when you amend your 1120S and reissue the K-1, check if you also need to amend your personal 1040 return for the same tax year. Since the K-1 flows through to your personal return, and especially with the 199A deduction being affected, your personal tax liability might change too. The misreported officer compensation vs distributions issue could also affect your reasonable compensation analysis if the IRS ever reviews it. S-corps are scrutinized for too-low salaries compared to distributions, so make sure you have documentation supporting why your salary is reasonable for your role and industry.

I made a similar mistake on my 1120S last year and just want to add - don't forget about your state filings! If your state requires an S-Corp return, you'll likely need to amend those too. In my case, I had to file amended returns with both the IRS and my state tax department. Also, double-check your basis calculations after making these corrections. The shift from salary to distributions affects your basis differently, and having an accurate basis calculation is crucial if you ever need to take losses in the future.

Just went through a similar S-Corp amendment nightmare myself! A few additional thoughts based on my experience: When you file the amended 1120S, make sure to check the "Amended Return" box at the top and attach Form 1120X if your software generates one (some do, some don't). The explanation statement should be concise but clear - I used something like "Correcting officer compensation from $41,000 to actual amount paid of $36,000" for each line item. One thing that really helped me was keeping a detailed log of all the corrections I made and why. This came in handy when I got a letter from the IRS asking for clarification a few months later. Having everything documented made responding much easier. Also, since you're correcting both salary down and distributions up significantly, be prepared to explain the business reasons if asked. The IRS sometimes questions when they see compensation decreases paired with distribution increases, even in amendment situations. The good news is that being proactive about corrections usually works in your favor with the IRS. They appreciate taxpayers who catch and fix their own mistakes rather than waiting for an audit to discover them.