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Discussion Forum Index --> Tax Questions --> S- corp with no payroll, salary or distributions
Rodcpa (talk|edits) said:
| 14 March 2006
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| My client has an S-corp with net profits of aprox. 20k. He has not recieved any distributions nor has he drawn a salary. Is this a problem? It is the first year of operations. Is it too late to make any changes since the Feb. 28 deadline for w-2 passed.... Thanks for your help
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JR1 (talk|edits) said:
| 14 March 2006
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| With first year and only 20k, I'd take the risk. The worst that happens is that you get audited and they take the whole 20k into salary. Whoopee. That's what you would have done anyway. You stand to be ahead if you win, and even if you lose.
Easy call.
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ScottCPA (talk|edits) said:
| 14 March 2006
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| I would say it would be difficult for the IRS to "deem" some of the 20k as wages since nothing was even paid out of the corp to the owner. Should be ok.
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Rodcpa (talk|edits) said:
| 14 March 2006
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| Thank you for your answers. Is there a threshold I should keep in mind regarding profits of an S-corp? Say 40k?
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JR1 (talk|edits) said:
| 14 March 2006
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| Anytime there's no salary, bells better be ringing. If he's taking no money out, it's not a problem, but it could still kick out at IRS for a review if you know what I mean, and I know you do...! Regardless of the profit, I like something in that salary line for officers.
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MAPBUSINESS (talk|edits) said:
| 14 March 2006
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| to rodcpa: I found a good source of S-Corp info in "1120S Express Answers:Income tax Compliance and planning 2005" from CCH and the book is not expensive.
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Riley2 (talk|edits) said:
| 15 March 2006
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| There is absolutely no requirement that an S corp sharholder draw a salary. Instead, the Tax Court simply states that one may not disquise remuneration for services rendered as a distribution.
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Warren (talk|edits) said:
| 15 March 2006
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| There is no requirement that an S Corp shareholder draw a salary. But an S Corp officer (who is probably also a shareholder) that is providing services to the corp should be paid a salary for that work.
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JR1 (talk|edits) said:
| 15 March 2006
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| The only time I feel like I can legitimately get away with no salary of any kind, is when the shareholder is retired, or has income from other sources and the S is a side biz kind of thing. In either case, I seek out someone to be elected an officer so that something shows up on that Officers Salary line...just to prevent an easy catch in the IRS computers.
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Jasonannalynn (talk|edits) said:
| 2 April 2007
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| I am in the same siutation with a client. It appears it is a new S Corp and he has a 9-5 job. He has not taken a Salary out all year long. Put something on that line or just what until next year.
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