Discussion:S Corp Owner Salary vs. Distributions
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Discussion Forum Index --> Tax Questions --> S Corp Owner Salary vs. Distributions
Cpasupport (talk|edits) said: | 16 November 2005 |
| We all have to decide at what level reasonable compensation is for S Corp owners. I've used industry averages, what employees are paid, corporate right to profit, IRS standard of living tables, etc. Anything I can to justify the lowest possible S Corp owner salary. I'd love to hear other peoples ideas. Sometimes I feel like I'm too aggressive when I'm listing $15k-$30k for salary for owners making 30k-$100k before salary and distributions, but what do we go with?
What we can get away with? That's probably a little less than what I really feel in my heart is reasonable compensation because I can make some pretty good arguments. Do we file whatever the client does. I have clients that pay 0-10% of profits in salary. Yes, they are playing the lottery audit game, but the problem is they are winning 99 in 100 times. I heard an revenue agent say that they really don't audit companies under $100,000 (He did not say revenue, profit before salary or profit after salary). I've got one right now that paid $0 salary and $40,000 distribution. Obviously salary should have been paid, but all 941s company W-2s, etc. have already been filed. If I changed distributions to salary where would I even make up the numbers (IRS's job). File as client did the books? He is starting salary now in 2005 per my advice but I'm still looking at his 2004 return (yes it is after the deadline) wondering how I could file an honest return with $0 salary or how to make up any other #s (I also feel that is wrong). What if he paid $6,000 instead of $0. We know $6,000 is unreasonable, but that is the paper trail.
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| 17 November 2005 | |
| If you are doing the tax return and they are doing their own payroll and bookkeeping, it would seem to me all you can do is highly suggest that they pay a reasonable salary. If there is no officer compensation, then that line on the 1120S must be zero. The IRS is looking at these lines and are starting to audit these returns. To put something there when there is none, is a big mistake. I certainly have clients that own corporations and their kids are the employees and run day to day operations. If the owner/officer does not physically work in the business, I have no problem with a zero salary. When they are working in the business, then they need to pay appropriatly. Look at the hours they work and wages paid to others. They certainly should not be the lowest paid employee of the business. The amount of the wages need to fit that facts (hours worked, going rate, ect..). | |
| 18 November 2005 | |
| One general guideline I always use is, never let the salary be less than the distributions. After that, it's anyones guess. | |
DianeOffutt (talk|edits) said: | 22 November 2005 |
| I advise clients of the 60/40 rule, 60 being salary. | |
| 23 November 2005 | |
| I just had an S Corp. s/h tell me yesterday that he was advised of the 60/40 'rule'. However, is this really a rule, per se, or just a oft-used recommendation? | |
| 24 November 2005 | |
| All of the above responses to remuneration for "S" corp owners are reasonable, however LJACPA has the real answer, in that salary should never be less than distributions. In years past IRS has overlooked this requirment in an "S" corporation, but are now beginning to take notice. One way to resolve this issue is to convert to an LLC which has no such remuneration requirement. Although I believe they will close that loophole one of these days. Have already had on audit of an "S" corp where the owner worked full time and the auditor allowed his salary to be substantially less than distributions, but only because it had been done that way for several years. I suspect they, IRS, do not want to face a precident setting issue just yet. | |
| 25 November 2005 | |
| I do not agree with the distribution rule as noted above. Distributions have no relationship to the amount of time a shareholder spends on the business activity and how much hiring another person to do those tasks might costs. Making a high profit margin on income does not mean the shareholder should have a higher salary signing check or supervising employees. The IRS audits are so low that I do not spend much concern with whether the IRS will audit more returns in the future. I have only seen 3 audits last year out of 1,000 returns filed. Not much to worry about.I usually use a wage of $18 per hour times 2000 hours worked per year equaling $36,000 per year. We have never had a problem yet. | |
| 28 November 2005 | |
| Seems to be a broad grey area, but I think it will get more attention as the IRS has hired more people. It may be okay for no compensation at times, where the business has not yet been profitable or is a new business for the first year. I then suggest that the owners pay themselves at least what they would hire someone for similar work. As a check on your method, distributions really should have some relationship to capital invested or retained in the business. I think that a straight percentage (like 60/40) may not hold up. Some taxpayers choose to be more agressive than others, but my preference is to have a salary that is based on hours, reasonable rate of pay, and move it up slightly each year (unless business or amount of work decreases). Have your clients put a reason for salary in the annual minutes. That should help document the reason the pay rate was chosen. | |
| 2 December 2005 | |
| As far as all of the above comments, I am most closely alligned with DZCPA. I don't worry about 60/40 or whether the salary is greater than the distributions. I've never had one of my S Corps. audited, but the feedback I've heard from others is that the IRS has only really raised the issue when the stockholder takes ZERO salary (hogs get slaughtered). | |
| 4 December 2005 | |
| There are more considerations in deciding salary and distributions than i have seen mentioned here. I had a plumber take the salary of his highest paid person. ( $36000 ). He also had $100,000 in profit distributions. My arguement with the IRS was that his salary matched the averages in our region for plumbers and the profit was his dividend as a shareholder. I successfully argued that the other four employees also earned profits for the company. So the circumstances should dictate the salary/dividend decision. If owner is the only worker, it would be hard to argue large profit dividends.You need a rational approach to your decisions, not a standard "rule of thumb". You need to impress on the IRS agent that the shareholder and the company are separate entities and to look at their audit with this in mind. And always, smile, act nice, offer food and drink, and a comfortable working environment for the Auditor. | |
| 4 December 2005 | |
| I am not that familiar with the preparation of S-copr returns but I was under the imptresson that if a k1 is issued to the owner of an S-corp and the income is reported with self employment taxes being paid would that not cover requirement of salary as long as SE taxes are being paid? Does the salary hae to be in the form of a W2? Can somone answer this question for me ? | |
| 4 December 2005 | |
| Naa, Income to an owner shown on a K-1 is not subject to self employment tax since they are not "self employed". Salaries are shown on a W-2 only. | |
| 5 December 2005 | |
| DZCPA,
Do you know why we are then given an option on the pass through K1 (on the individual tax return) screen to enter self employment income, under other info (17): That section alone was part of the reason that I believed that we were able to choice the option of paying SE taxes on K1 income,as this entry generated an SE tax calculation for the taxpayer..Have I then been mis-using this option? | |
| 6 December 2005 | |
| Naa, Not sure why your program shows that for a S Corp K-1 form. There is no line on the S Corp K-1 for self employment activity. The K-1 is issued to a shareholder of the corporation, not a employee or an outside contractor. S-Corp income does also not qualify as income for IRA or SEP IRA deductions. | |
| 9 December 2005 | |
| I usually just use something reasonable as compared to net income, and I determine this as a year-end salary, unless the owner wants to take salary during the year. I know it opens up for a payroll audit, in that the year-end salary probably could be pro-rated over the year, but I use it at year end as a vehicle to pay their estimated taxes, since withholdings are deemed as paid equally throughout the year, thus reducing the chance of underpayment penalties. Also, I use the amount needed for withholding as another guide for determining the gross salary. This is still sort of unchartered territory, and we are all taking a bit of a chance in whatever method we used. I just think that as long as it looks reasonable on paper, you probably won't be audited. As an aside, a few months ago I read they are trying to pass that S Corp K-1's to participating owners will be subject to S/E tax, just like a partner in a partnership, so this may all be a moot point in the near future. | |
| 10 December 2005 | |
| The present cases are all concerned with t/p's who paid no salary at all, and the IRS calling all S-Corp income as salary. Reasonable salary seems to be in the eye of beholder. | |
| 10 December 2005 | |
| Mpfllc said to convert the S corp to a LLC. I'd like to know how this is done without triggering tax consequences to the S corp shareholders. Effectively the S corp is liquidated and it's deemed a sale at FMV of the assets, the excess of such over the shareholders basis in the S corp being gain, some ordinary (depr recapture, etc.) and some capital gain. | |
| 11 December 2005 | |
| I am in need of advice for a client who is a shareholdser/employee of an S-corp. Why would distributions to this s/h be more tax beneficial than payroll? The distributions are high and I am telling the client to pay himself a payroll check to write off distributions to the 40% and to pay enough in income taxes to offset the income from the corporation.
But my question is: Are distributions treated as income in the current year? And if so, are they then taxed at the same rate as income? Thanks | |
| 13 December 2005 | |
| Sandy, Distributions are not taxed ever unless they exceed a shareholders basis. What is taxed is the shareholder of a S Corp's share of profit (paid out or retained by Corp). They are taxed the same as wages except there is no social security taxes due on distributions. | |
| 14 December 2005 | |
| Thank you DX. I realized that the share of income on the K-1 is taxed as income to the shareholders. The basis is what confused me :) | |
| 14 December 2005 | |
| We prepare over 150 S Corp returns each year. We always advise our clients to pay reasonable compensation. For those who are unable (or unwilling) to determine "reasonable" compensation, we use a 50/50 rule, although we prefer the 60/40 rule. Never once had an audit on the issue. Main reason: The IRS is reluctant to place itself into the role of the DOL. The IRS is responsible for tax compliance, collection, et al. The Dept of Labor sets labor and wage standards. Cross-functionality is not something the US government does well. Also, if you think about it....if the IRS were to re-characterize a portion of the distributions as salary, they would be requiring the taxpayer to INCREASE his expenses! Not a comfortable role for the IRS to be ADDING deductions to the taxpayer's tax return! | |
| 15 December 2005 | |
| I agree; but the increased salary would wash out in the 1040 return would it not? Yes, it would be deductible for the corporation, but the shareholders would increase their earnings and the tax benefit would not be realized as such in my opinion. The savings would be in the matching fica and unemployment taxes only don't you think?
I do have a client who has taken salary all year but has not made any payroll tax payments nor filed payroll tax returns for the current year. He also has no money to pay any taxes, so my suggestion to him is to close the corporation..it has only been in existence since August and he is not doing anything to be compliant. What are your thoughts on this? As well, his father has a corporation and has been paying his son a fee each week (which should have been treated as salary to the son's corporation) for work he is performing for him. His father takes salary and makes payroll tax deposits for himself, but in case the son closes his corp and does not pay any payroll taxes, would this expose the father to payroll taxes for the son? The son is basically a subcontractor, but it could be argued that he is an employee?? | |
| 29 December 2005 | |
| Please let me know if I can be a resource for your clients. My company has responded to the growing number of conversations surrounding payroll compliancy for S-Corporations. We have introduced a service that will allow pay the owner a salary, deposit the federal, state, and local taxes, file those tax returns, and create the W-2 at year end. We do this for a nominal fee of $30/month. We have helped s-corps all accross the country with this service. Sanysea, I'm sorry I do not have an answer for your question. | |
| 8 January 2006 | |
| One of my clients has S Corp for his side business and he works for large C corporation., this year he already satisfy Social Security payment via W-2 from the C corp. so he would like to “save” on the SS from the S – assuming he will get W-2 from the S corp as well – he will be exempt from his side but his S Corp will still need to pay it’s part to Social Security.
My question is – can he issue 1099 instead of W-2 as Director Compensation subject to SS, that way the S Corp will not pay SS and he will not pay because he already reached the cap…am I missing something? | |
| 9 January 2006 | |
| DZCPA, thanks for the reply! I know that however- because my client is a full time employee (at the C corp.) and the S is for side consultation business - can't he invoice his own S corp. for Management services using 1099? | |
| 9 January 2006 | |
| No. He is a part time employee of the S corp. He CAN get more then one W-2 in a year. | |
| 9 January 2006 | |
| I briefly read what you've all been discussing... I'm getting a bit confused. I have my first S Corp client. They've been taking a "reasonable" salary all year and have had a very profitable year. Can they take a year-end distribution of profits / dividend distribution (as long as it doesn't exceed net profits or their basis)? I'm thinking a few thousand each. What are the steps involved??? Beginning with the owner/officers cutting themselves a check. It's reported how on the 1020-S? goes to the K-1 then to the 1040? It does NOT get added to W-2? Does it get 1099'd?
I appreciate the help. | |
| 9 January 2006 | |
| I am reading a lot about this 60/40 rule. 60/40 of what - - gross income or net income? | |
| 10 January 2006 | |
| There is NO RULE. Accountants are making their own rule to what they feel is a comfortable allocation. Officer salary in relation to S Corp profit before Officer salary. | |
| 10 January 2006 | |
| Casper, generally, yes, they can take a pro-rata (based on ownership %) distribution of the profits, which should not exceed basis. There are really no 'steps' involved other than writing a check. Maybe a 'duh' comment, but only owners (who can also be officers) but not officers who are not owners can receive distributions. I assume that when you said '1020-S' you meant 1120S and yes, the distributions are reported on the 1120S, in several different ways. Distributions that do not exceed basis are not reported on Form 1040 and never on the W-2 or a 1099. Please forgive me for saying this, but these answers are very, very basis and general to some potentially very difficult issues. Please find someone to help you prepare this return. | |
| 10 January 2006 | |
| LJACPA, Thank you for your response. Yes, I did mean 1120S (typo). Yes, I realize these are pretty basic questions. I thought I knew the answer to but then reading some of the discussions above, started to make me question myself. In the past, I had heard people (owner/officers of course) just write themselves a check. Obviously, it is a distribution not and expense and would therefore basically become subject to income tax when net profits flow thru to the 1040. I didn't mean specifically reporting the distribution on the 1040. Anywho, I appreciate the advise. I plan to have another CPA's assistance definitely. Thank you for your clarity. | |
| 5 July 2006 | |
| Hello,
I currently work for an employer at $58.00 per year w-2. I have an offer of $60.00 on a 1099 basis. I am wondering that if my comapny makes the $60.00 per hour and I paymeself a reasonable salary such as $30-$35 an hour. Will making this move make financial sense? I am also hoping to be able to take advantage of other advantages of having an s-corp. I know you are busy but I have that potential client awaiting my answer and I am unclear on the correct direction. Assistance is greatly appreciated. David | |
| 5 July 2006 | |
| If you can justify that 30-35 as reasonable, you'll be $4500 ahead on SS taxes, which you should invest in retirement since you're foregoing the SS taxes. That will create another $1000 deduction...now the cost of being a corp with added year end filing and quarterly work will run $1-2000 depending on how an accountant wants to handle your work. But you're clearly ahead of the game if that hourly rate is reasonable. | |
| 5 July 2006 | |
| I've always taken the position that "reasonable compensation" would be what an owner would pay to have comparable services performed by another person. I've also taken this without regard to the "intangible" quality that allows this specific owner to generate more revenues and profit than your averatge person.
For example, I have a ticket broker client that grosses $400K/year. He manages and operates the business, with 2 employees. We used a salary of $65K and distributions of $100K because $65K is what he paid himself per year before he incorporated, so he has history. In addition, for the duties that he performs as office manager, $65K would be a very reasonable salary. Again, never had an audit, but I would be comfortable making this argument to an IRS auditor. | |
| 6 July 2006 | |
| I was recently at a seminar where the instructor claimed he had a close acquaintance from the IRS who stated S-corp salary "reasonableness" is close to, if not the top, current priority for prospective examinations. He stated they aren't looking for those "slam-dunk" cases where no salary is taken and all distributions. Instead, they're looking for several big and small cases with "close calls". In other words, where salary and distributions might be closer, say 50/50. I don't think using 60/40 rules or any other "safe harbor" is appropriate. Instead, it seems "reasonableness" will first look to industry standards. If there's enough available cash and an owner is paying himself a "reasonable" salary in the eyes of the IRS, then the level of his distributions won't matter, low or exceedingly high. Even though so many clients can play the so-called "audit lottery", always remember that as tax practitioners there are certain regulations (professional standard - such as Circular 230) that do NOT allow you to sign a return if there's a certain percent chance (I don't remember the threshold) that a position won't stand against an audit. Just be careful - not only can your clients hurt themselves, they can hurt you. I don't want to sound paranoid, but caution is in order. | |
| 25 August 2006 | |
| this may sound like a dumb question, but why does it matter if they take a salary versus a distribution anyhow? the bottom line is that it all transfers over to their adjusted gross income on their 1040. so, the result would be the same tax liability. | |
| 25 August 2006 | |
| The Service wants some payroll taxes to pay my social security. | |
| August 25, 2006 | |
| It's all about SS taxes Chap. Only wages are subject to the 15.3% SS/FICA taxes. Income taxes are all the same, you're right. | |
| 25 August 2006 | |
| oh gotcha, thanks. i am not an accountant, but i do to credit analysis, which includes analyzing financial statements. also, if an s corp has two equal owners and assume that it is the first year in service. if one partner takes over 50% of his share of the equity of the company (including the current period earnings), would this be considered tax evasion (since he only paid taxes on 50% of the earnings but took a larger amount in distributions)? i would imagine his basis in the company would be brought to a negative and would think he would have to declare capital gains??? thanks in advance. | |
| August 25, 2006 | |
| Yeah, that's about right. (Sol: LOL at your edit, btw!!) The income that's taxed is the profit share. If he takes more than that, we've got schedules to keep on his basis and whether he took more than that, etc. and then have to deal with it accordingly. | |
| 25 August 2006 | |
| i was actually just browsing the net for a quick answer and found this site today, it is awesome!!! jr1 and sol, thanks for the fast feedback. since this topic kindof went dead, i hope its ok that i kindof took it in a new direction. but since we are on this, if the owner took greater than his share of equity in distributions, why not just take a loan from the company??? i mean, it makes sense. no cap gain taxes. | |
| August 25, 2006 | |
| Sure you're not an accountant? That's the trick, if you can call it a loan and keep it legit. Some more conservative accts never do that and always take it to income. I, rebel that I am maybe, have never taken one to income. But I am not beginning to document the heck out of these and consider whether I should or not.... | |
| 25 August 2006 | |
| jr, according to your post on the other topic, you still have to pay 15% cap gains on the note as well??? that is bogus imo, i never heard of paying taxes on loans, but i assume their ruling is that since it is a related party transaction, they partially weight it as a distribution and partially a loan; in the fact that the tax rate is lower than the 28% normal cap gain tax. | |
| August 25, 2006 | |
| Not on the loan unless it's not repaid. So if there's a note, and the loan's not repaid, or you figure it won't be and then decide to tax it, it's at the cap. gain rates. Without a note, the same thing is ordinary income. | |
| 25 August 2006 | |
| jr, i was not going to ask this, but it really is bugging the s#it out of me. here is a paraphrase from your quote on the other topic you are postin on:
"As to the second, the rules require that if there is a note document for the excess, it will be treated as cap gain, 15% plus state tax. If no note, ordinary income, 28+% plus state. Big diff." but on this thread you state that you don't have to pay the tax. just curious, thanks man. | |
| August 25, 2006 | |
| You sure have a lot of questions! That's ok...all I meant was that tax is due when you determine that that note won't be repaid, not when you create the note. I thought that maybe you'd misunderstood that along the way... | |
| 26 August 2006 | |
| Boy, is this confusing! Chaplowj, if you have equal shareholders in an S corporation, they should receive equal distributions. That's the simple answer. If one takes greater distributions than the other, you open up a number of potential issues. One is the possibility of having the S election revoked because it could be construed that you have two classes of stock, which is not allowed. I just wonder why one s/h deserves more, why not just pay him/her more in salary? JR1, what does this mean, "Some more conservative accts never do that and always take it to income." Take what to income? | |
| 26 August 2006 | |
| OK, let's get down to brass tacks -- have any of the many CPAs that have contributed to this discussion ever seen one of their S-Corps get audited and have reasonable compensation brought up by the agent if they actually *did* pay shareholders?
The reason that I ask, is that I've started an s-corp and will be paying myself an hourly rate, but I really want to minimize the rate for SS tax purposes. $23/hr is what I've originally come up with as enough to get by on while retaining the rest as profit (perhaps to be distributed in later tax years). | |
| 26 August 2006 | |
| When you think about the IRS fervor regarding salary vs. dividend, the hyprocrisy of it all is really troubling. If you have an S-Corp, they'll go after you for disguising salary as dividends, and if you have a C-Corp, they'll go after you for disguising dividends as salary. It's all pretty laughably stupid. | |
| 26 August 2006 | |
| Sure that's a ton of cash and all, but his business is actually illegitimate. This kind of thing made tech news a few months back, since to create an account for this type of online game you have to agree to terms and conditions, the most prominent of which is that you may not sell virtual currency for hard currency. It was smart for this chap to incorporate purely for liability reasons, forget that he's not saving any tax money since he's maxing out his SS wage base. If whoever runs this particular game decides to bring suit, it will be nice for him to at least be able to attempt to protect his personal assets behind the corp, though from what I've read, it's unlikely that the protection will really hold up considering the owner and only shareholder of the business was willfully violating a legal agreement for profit. | |
| 26 August 2006 | |
| Jc, No audits yet. They might start soooooon as some accountants have said for the past 10 years! | |
| 29 August 2006 | |
| The only valid 60/40 rule is for marked to market 1256 contracts. | |
| 29 August 2006 | |
| How about the 90/10 rule. 90% of your problems come from 10% of your clients. | |
| 31 August 2006 | |
| if a s-corp had a net loss for the period and you want to know if the owner put capital in the company to cover any losses, where can you tell? sometimes on the k-1 from the s-corp, they reconcile the capital account and sumetimes its just this barcode looking thing. in this situation, the k-1 does not reconcile it. i would assume if there was a capital infusion that it would be located on the schedule m-2 or page 3 of the tax return. let me know.
thanks in advance | |
| 5 October 2006 | |
| Hi, I am an expat living in europe. For the past couple of years I have declared the foriegn income exclusion by physical presence. I intend to do this again for 2006. The situation I have for 2006 is the offshore I am an employee of is no longer an option and I now have a two part salary. One in an EU country (taxed there) and the other (main part) which can be sent anywhere. Both together are about 85k split 12k and 73k. While I have looked at setting up an offshore company in a US approved place like Cyprus (no FICA) it would be much easier and cheaper to do a US S Corp and I can manage it. The question is what guidelines should be used for salary/distribution in this case? The idea of course is to minimize FICA. I will be consulting with a couple of accountants in the US as well but like to hear from anyone else with some experience in how the IRS would treat a low salary in this case. for example a 20/80 split?
I would be the only employee of the S Corp and would not have any expenses for 2006. Additionally the S corp will only come into existence in Nov 2006. | |
| 6 October 2006 | |
| Divide it up based on where you work and read the above 40 posts for more very important information. | |
| 10 October 2006 | |
| ok, I have read thru this post (very interesting & informative), and have a few questions. I am a s corp business owner which I started as the sole shareholder in '04. Both '04 & '05 have posted a loss. I self funded the start-up and have added additional capital and debt since.
I understand basis to be the amount of money I have put into the company. I understand the salary/disbursement relationship to a point. It seems more applicable to an established (& profitable) company. As start-up, I was living off savings in year one (but did pay out $12k in Dec '04). In year two (having run out of savings), I paid out to myself a bare minimum (no where near a reasonable hourly wage). The amount I paid myself is less than 1/2 of what I put in (basis) to date. What is the most tax efficient way to define the money I have taken out of the company to pay my living expenses? Should I classify some of the capital put into the company as a loan, and thus some of the money was repayment of the loan? Can I claim a higher distbursment ratio as a start-up? I need to minimize my tax exposure for the simple reason that I am out of money. What to do? Thanks. | |
| October 10, 2006 | |
| Don't worry about ratios with losses. You can repay yourself your money anytime...just keep track of your basis, since losses and repayments both reduce it. Eventually, you'll either not be able to repay yourself without tax, or be able to deduct further losses...until you earn some profit or throw more cash in the pot. Hope that makes sense... | |
| 11 October 2006 | |
| JR1 - thank you for your reply. This comes as a relief.
So, it is ok to have zero salary combined with disbursements if the company has shown a loss? That won't set off alarms w/ the irs and be the proverbial hog? If this is the case, I have a related question. I set up health care thru my company, and have the company pay the premium. Given a company can deduct max 30% of health insurance and the remaining 70% has to show as employee compensation, should I list the 70% as a disbursement or as compensation? Just to be sure in calculating repayments & losses in regards to basis. If I put in $100k at start-up, lost $30k and repayed myself $30k in year 1, my remaining basis would be $40k? If I again lost $30k in yr 2, would I then be left with a $10k basis - & if so would any repayment over $10k have to be classified as either salary or capital gains? Sorry if this is basic for your guys, but I am just trying to be sure of the fundamentals before I bring everything to an accountant. | |
| 11 October 2006 | |
| 100% of health insurance premiums paid for a more than 2% shareholder are reportable as wages, although not subject to SE tax.
Your basis assumptions are correct, although from what you are saying it is unlikely you will receive re[ayment in excess of basis without income. | |
| 11 October 2006 | |
| Thanks, Dennis. I guess I got confused w/ over/under 2% shareholder tax on HI.
Is there any benefit to posting a salary in my situation (new company w/ a 2 yr loss), or should I just take money out as repayment/disbursement until either the company is profitable, or I close it up? | |
| 6 November 2006 | |
| As an S-Corp owner and one who lived through the audits on this topic - namely taking distributions in lieu of salary (the IRS won) - I finally found one reason that in my mind justifys taking a salary. It also helps me get past all the confusion on the subject - which is massive as indicated by all the questions and comments above. Basically, taking a salary allows the company to contribute to a SEP in amounts equal to 25% of gross salary. Keep in mind I'm the only one in the business. There is an upper limit which I don't recall at present. The SEP contributions reduce profits/distributions keeping the K-1 pass through lower. So my goal is to max out the SEP contributions. That requires me to take a salary. So I contribute to Soc Sec and get a SEP too. That's a good trade-off in my mind. I just wish my accountant was able to explain it this way when I first started - late '80's. He was POSITIVE that an S-Corp was the way to go. | |
| 6 November 2006 | |
| Your accountant too may have been speaking of the tax savings to an S-corp if you don't have a state income tax as we don't in Florida. An S-corp and individuals are not taxed in this state, so it is the entity of choice for many here | |
| November 6, 2006 | |
| You're way ahead on cash, Peg...but it shouldn't have ever just been spent. When you legally find ways to dodge SS taxes, you need to take that money and invest it to cover the same things that the SS system does. You'll get a 4-6x return on it, too. | |
| 8 November 2006 | |
| JR1 - Consider that a start up business will be scratching and clawing for cash to payout to the owner in the beginning. After all, he needs income to pay the personal bills. Given that scenario, if the S-Corp is only producing 20 or 30K beyond its operating costs in the first year, you're suggesting it MUST be taken as salary as opposed to distributions? Consider too that most of that cash may only come into the business very near to the end of year. In short, there is NO cash available to pay a salary to start with. So if you approach year end with an influx of cash, what do you do? Pay one month of "salary" of $20,000? | |
| November 8, 2006 | |
| I realize that this thread has gone lengthy, but your salary must be reasonable. If there's no money to pay a salary, i.e. no profit, then there's no salary. If your only profit is 20k, then yes, you'd be obliged to take a bonus pay on 12/31. As profits increase, the salary will remain fairly steady based on prevailing wage levels for your job in your area. That's where you save the cash...on the SS taxes. But you should still invest into yuor own retirement/disability/life ins. Hope that makes more sense. And I guess the answer should be yes. If your profit is less than a reasonable salary, it should all go to salary, and it can be paid at year end. | |
| 8 March 2007 | |
| Hi,
Myself and my husband has S corportation in which he is acting as an independant consultant and I am the 100% shareholder. He is getting 1099misc for 40000 out of 80000 that we made in a year. Since I am working as a full time analyst in a corporation and not 100% actively participated in the business, I did not give any w2 to myself and thinking about distributing $40000 as dividend. Is there any other way that I can treat this amount? Can I retain part of this money and distribute only $20000 to my self as dividend? | |
| 12 March 2007 | |
| Any advice with recent experience or problems on showing income subject to SE taxes if there were no salaries paid from S Corp in 06, TP made estimated payments to cover for 1040 but there were no witholdings in S Corp so cannot show as officers comp. might be flagged at payrol audit. I was thinking of doing it via management fee to Schedule C. TP working from home so home office use will be on Sched C. | |
| 14 March 2007 | |
| Hello: I am not an accountant but have been doing my husbands business taxes for the past 4 years (pity him). Here's our situation, if you could offer me some advice. He is the the sole employee of a Florida based S-Corp. We stated losses for the first 2 years, with a salary paid to my hubbie of ~ $4,500 for each year. The company's income ranges from $25-35K (graphic & web design). Last year we stated a small profit of about $400. The company pays to us as expenses: 1/3 of our mortgage (works from home), 1/3 use of the car (he drives all over meeting clients and such), the cell phone bill, and computer rental from us.
I have always been very confused as to how to treat the checks my husband writes to himself. I apply them to the money owed by the company for the above mentioned expenses, and apply the difference to salary, figuring out the payroll type taxes from the difference amount. Earlier this year, I spoke to the IRS to get some clarification as to whether or not this money is considered salary or something else (an accountant we went to said we should treat as distributions). She said my husband was not considered an employed, changed it in our files and told me I did not have to file anymore 941's. I was quite pleased to hear this, but it just didnt seem right to me. After reading the above threads it seems I will have to go back and file these quarterly reports!? My questions are: 1. If the company is only bringing in a small income, shouldnt his salary be proportional to the income? If he was working for an established design firm he would be making much more, but he is also an artist so divides his time between both the company and his art. 2. As the sole employee are we responsible for federal and state unemployment taxes? 3. Does the "salary" we pay to my husband have to come in some sort of normal, weekly/bi-weekly fashion verus the checks he writes when he needs it? 4. Whats the best way to go about paying my husband? Thank you very much for your time. | |
| 14 March 2007 | |
| If a Sub S shareholder takes draws in excess of basis and you know it will probably never be paid back as a loan, how do you report it as taxable income on the K-1? Thanks for any help | |
| March 14, 2007 | |
| Stouts: yes, if the profit is minimal, the salary question doesn't matter. When it's a side biz, that's often the case. Just be careful that you don't end up with decent profit and draws against it without salary. Yes, when you're filing payroll taxes, you're in for all of them. 3. I don't think so, have often wondered about this myself. But I don't believe that the frequency of payroll is regulated in any way. 4. He can get reimbursements, profit draws, and salary. All are different.
Vicky: I don't believe that it's a K1 item. It goes on Sch. D of your 1040. | |
| 14 March 2007 | |
| Would it go as a sale of stock with no basis - short term? Thanks for any help | |
| 14 March 2007 | |
| Thanks for the response JR1!! How does the IRS know it is a side business (is there a way I can communicate that to them?)
Regarding reimbursements, profit draws and salary... Since he pays himself so nominally can we call that money profit draw (I am assuming reimbursements is reimbursment for capital put into the company?) and just report it as personal income, bypassing the payroll taxes? I really hate those quarterly filings, and the penalties I end up paying by filing late is seeming to offset the benefits of having the S-Corp. Any reading material, websites, etc you could recommmend on how to correctly go about doing our books, salary, etc. would be most appreciated. I have been learning as I go along but would love to have a more definitve formulas and methods to attacking our business accounting. It is always a worry for me whether I am doing things correctly. Thanks again! | |
| March 14, 2007 | |
| Vicky, the basis would be whatever you still have invested in stock or loans or undistributed profits...
Stout: They don't other than that the numbers are obviously smaller. If you only show 10k in profit for example, no one's going to get excited. Whether you can pass by the PR filings is a matter of how much profit is there, and if more than 10k or so (this is just talking out loud, no authority for that number)...then you need to address what a salary should be even for PT work. I agree, the filings are a pain, get some help, you spend more in penalties than it costs to do them! I charge 100/qtr for one-person PR filings...and Stout: I AM THE BOOK! Seriously, I don't know...I'd rather see you spend the money on a pro's help, even if it's infrequent so that you don't get a nasty surprise somewhere. Or stay here and read all the S threads. That'll tell you everything you want. | |
| 14 March 2007 | |
| You may need the help of a cpa, probably to do the work on a quarterly basis.
Before any profit can be taken from the business, there must be p/r. Your husband is an employee of the s corp, in if p/t. All p/r taxes must be paid. You can take profit from the AAA acct if there is any. Since the prior years had a loss, the AAA a/c may still not have a profit. You can't reimburse for capital. If there is a shareholder loan acct, you can get a reimbursement from that so long as the acct has a credit bal. Reimbursement of expenses is fine if you keep expense reports and do it on a regular periodic basis. If the s corp pays for se health ins, that must also be added to the w-2, without any w/h. There are many issues here any a non prof can get into trouble. You need professional help. | |
| March 14, 2007 | |
| I'll disagree with this: Before any profit can be taken from the business, there must be p/r. That's generally true, but when you're talking about very small profits, or a non-owner run company, it isn't. Based on what I read above, the first may be true. But agree, handling S's isn't for the DIY crowd. | |
| 14 March 2007 | |
| If I were to employ the assistance of a CPA what exatcly do I need to provide to them? Do I have to still do the data entry into Quickbooks? | |
| March 14, 2007 | |
| It's always a matter of time and money. Use whichever you have the most of! Most of my clients keep their own QB, yes. | |
| 14 March 2007 | |
| Stouts, there are other professional preparers out there besides CPAs. Enrolled Agents, for example, concentrate on taxes instead of accounting. | |
| 15 March 2007 | |
| OK, here's a good one. I am a Lic Tax Consultant, not practicing, but have done S-corp returns in the past. Friends have come to me for advice, I'm not being paid, so have some flexibility, "creativity"
Income/Losses below are after salary, if pd. Distributions paid are after salary. Client started bus in 2002: 2002, Net Loss ($10,000)$00 salary,$00 distributions 2003, Net Inc $20,000, $00 salary,, $00 distrib. (repaid loan to SH) 2004, Net Inc $87,000, $00 salary!! $26,000 distrib. 2005, Net Loss($6,000),$20,000salary, $41,000 distrib. 2006, Net Inc $5,000, $30,000 salary, $2k distrib. They have NOT filed 1120S or 1040 since 2002!! (lucky me, that's my job!) I have thought about filing 941's as follows: 2003 w/$5k in salary 2004 w/$10k in salary (as a warm up, new business, just starting to be profitable). They just take the hit on late filing, late pmt penalties to avoid the $0 salary in 2004 and all the distrib being deemed salary, which I have heard could happen, but have not seen discussed here. I know $10,000 in salary may sound low, but I have to weigh the risk of a low salary, w/all the penalties on the late 941. But, if they had no distrib in 2003 (they repaid loans to SH instead) and after reading all your great comments, I am starting to think it may not be necessary to file a (very late!!) 941 2003 and I could suggest a $15,000 salary in 2004 instead. At least they haven't filed the returns yet! Thanks for your help & suggestions! | |
Bottom Line (talk|edits) said: | 15 March 2007 |
| I'd also lien toward not doing payroll for 2003. Not a lot of income and horrible penalties. Question for 2005 - with a $6,000 loss, where's the money coming from of a $41,000 distribution? | |
| 15 March 2007 | |
| Thanks for your comment, Bottom Line. In '04 they had an $87k income, and only $26k in distrib. 2004: $87k-$26k sal=$61. 2005: $20k sal+$41k distr=$61k. $6k loss in '05 is auto depr | |
| 17 March 2007 | |
| Hi all, great info in this thread. Have q's about particular situation. I started S corp in '06 with 3 equal owner/officers. Each contributed $1500 to get started. Company had net profit of $15k for YE 12/31/06 on 1120S. Each member K-1 shows $5k ordinary income. The $15k profit sits in retained earnings, no money has been taken out as of yet.
The company continues to be profitable in '07 and will begin making payments to owner/officers. So I'm looking for tax advantaged way to pay out, both the retained earnings now, and profits throughout '07, using 50/50 split to start. Can the retained earnings be divided & assigned to owner equity accounts giving each $6500 in equity - and subsequently, can $5k be pulled out from owner equity account w/o tax liability? If not, how is this classified and what solution? As for regular payments, the salary portion is obviously subject to payroll taxes & reporting, but what about the distributions? Does the corp have to withold/pay anything on those or just rite checks and report distributions at end of year? 1099-div? I'm new to this so thanks for your patience and insight. | |
| 17 March 2007 | |
| Kevin - good advice, will pursue. Class recommendations? Any immediate insight on questions at hand? | |
| 17 March 2007 | |
| 3 equal owners/officers. 50/50 split. Better start with math class. | |
| 17 March 2007 | |
| Jd - if you read earlier posts you'll see references to 50/50 split of salary vs. distribution, as opposed to 60/40, and in contrast to some who suggest the salary must be appropriate for the industry, etc. That was the intended context. Obviously 3 equal owners would each receive 1/3 of profit. Questions at hand:
$15k of retained earnings in '06, reported on 1120s/K-1s. What is best way to pay it out now? For future payments to owner/officers, at 50% salary/50% distribution (see the math), I understand salary subject to P/R withholding/reporting. Question is what about distributions? | |
| 17 March 2007 | |
| Much apolgies. I've followed this post off and on, but too long to reread mid-tax season. Hope you took my comments lightly, as intended. In partial answer to your quesion, dividends may be paid from retained earnings of an S corp without being taxed when they come out. They are subject to neither income taxes nor FICA taxes. Having said that, there are pitfalls to fall in with an S corp and you should consider seeing a tax professional to guide you through the maze. | |
| March 17, 2007 | |
| And there is NO FREAKIN' SUCH THING AS RATIO'S to determine proper salaries......Stop it. | |
| 17 March 2007 | |
| That's one of the first things I teach when I'm teaching S Corp classes. | |
| 17 March 2007 | |
| JR, you must have inadvertantly hit your CAPS LOCK key when you were typing because I am sure you don't feel so strongly about that issue as to cause you to holler at anyone :) | |
| March 17, 2007 | |
| OH YES I FREAKIN' DO!!!!!!!! And just so you know that I know how to find that key.... | |
CTurner555 (talk|edits) said: | 17 March 2007 |
| Just finished a 1120S for a new client. 2 shareholders - husband and wife; not involved in the business. They took distributions of profits of roughly $28,000. Son in law runs business, and receives reasonable salary. Profit around $30,000 flows to in-laws; no salary. JR1, don't turn caps on, I'm getting to my question. I'll be meeting with the client next week to drop off return and asking more questions. If the intent for the distributions is some sort of buy out (New client mentioned that the previous CPA had not asked questions at all when doing the YE; some prior year balance sheet #'s were wrong....has there been any planning?), wouldn't they be better off with a sale of the business? Wouldn't there be capital gain treatment then? Fuzzy mind from all this work; and would appreciate thoughts. | |
| March 17, 2007 | |
| We can edit out the 2nd, no worries. Your shareholders are fine without salary, tho' since they don't work in the business. And the officer salary line probably has son's on it, so no audit flags. If they want to sell the business, that's a whole 'nuther question. For now, since they're taxed on the profits whether taken or not, they may as well take them anyway. Cap gain would be available if the son wants to buy the stock. | |
| 17 March 2007 | |
| JD - it is a long post... thanks for clarification on retained earnings/distro.
JR1/Kevin - Using ratios is indeed a specious approach, albeit one used by many tax professionals. I realize the owner salary must be appropriate for job function and industry. In a scenario where SMBs have regular income and can draw a regular salary, the remaining profit as a distribution at year end is more obvious. But what about a biz with sporadic work, i.e project related and/or part time w/out sound annual income projections? Should an owner be expected to draw a regular salary throughout the year and potentially end up w/no distributions, even though a distribution would be in order based on work done and level of profit? Or should the owner draw some distributions as well throughout the year based on the profit above and beyond the appropriate salary for each project? | |
Bottom Line (talk|edits) said: | 17 March 2007 |
| Feds don't require regular payments throughout the year. (Remember to file your 941 though.) Different states though may vary for unemployment. Florida doesn't care. Many businesses here in Florida wait until the end of the year to do payroll. I remember someone saying a few months ago that NY wanted even payments throughout the year. Don't know what state you're in (please complete your profile) but someone may be able to advise. | |
| March 18, 2007 | |
| Exactly. Thanks, BL. On 12/31 you make your bonuses and do the final PR. Many S's draw a minimal salary all year long, and more profit draws, until year end, and then bonus, cover the income tax liablities Jan. 15. How you get there doesn't matter. Sporadic income still doesn't explain some kind of split based on...what? Convenience? We really need to gather together and be consistent as a professional community to ensure that the reasonable salary has sway with authorities. It's when they get wind that we don't know what we're doing that say, "Screw it, SE tax all of it." That'll be much simpler then, but not what we needed or wanted. | |
| 18 March 2007 | |
| JR, while they're at it, they can SE tax all LLC income too. LOL As if we knew what we were doing. | |
| 20 March 2007 | |
| I am doing first year taxes for my C Corp turned S Corp and I have been taking minimal draws to pay the bills and to live on and no salary. I am still getting used to this new "mind set" of C Corp. I work the company full time and other occassional workers are 1099 recipients. If I show a loss on my 1120S, will I most likely be able to slide by for my first year or should I ammend the situation and file a late 1099 or W2 for myself? Advice greatly appreciated.
Thanks, Lee | |
| 20 March 2007 | |
| Sorry, I meant new "mind set" of S Corp. You see I've been really confused since I incorporated in 2005 and don't know what I am! | |
Bottom Line (talk|edits) said: | 20 March 2007 |
| Only first year and showing a loss so can probably slide by. Question though - you say you have a loss. Where's the money coming from for your minimal draws to live on? | |
| March 20, 2007 | |
| You are messed up! You should be fine, tho', with a loss...no red flags wave for that. Now get some pr started for this year. | |
| 20 March 2007 | |
| Hi, we have a two partners S Corp and the same partners also own a LLC. The partners get W2 from the S Corp. Can the S Corp writes a check to the LLC and the LLC pays the partners as independent contractors and issue 1099 MISC to them? The reason we want to do this is to be able to contribute to SEP IRA that has been setup under each partner's name (not SCorp). Is this the right way to do it? (S Corp does have other employees hired) | |
| 20 March 2007 | |
| I do about a dozen S Corp returns a year, and they are relatively basic, so when I run into something a little off the beaten path, I tend to get confused. I have a new S Corp client: The husband is the sole worker bee, and the wife is the sole shareholder (apparently to be minority owned). I'm sorry if this is so absurdly basic, but are there any gotchas I have to watch out for if the sole shareholder is not participating, but is married to the only real participant??? I can't really think of anything that I would have to do differently from a more typical' scenario, but it's nagging at me that I'm missing something. | |
| 20 March 2007 | |
| Wwtaxes - if they want to take advantage of the minority ownership then she must be an active participant. They couldn't possible get throught the MBE/WBE registration process without her active participation. Therfore, she would get a salary.
Regarding reasonable compensation - it is different for every S corporation, there is no rule of thumb. It is unlikely that a salary of the max FICA rate will be questioned. I use my gut, or the "smell test" and then look at the situation on a company by company basis. FYI localities must be looking at this too. I had an S corp owner take no salary on company with a loss and take a distribution of 5,000 (clearly prior year profits & to pay parior year taxes!), and the locality wanted to know why she didn't take a salary. OYVEH! | |
Cdwoodscpa (talk|edits) said: | 24 March 2007 |
| Hi, I am new to this board and would appreciate any comments in regard to the situation I have run into. I have an S corporation that is undergoing an employment tax audit (shareholder salaries = Zero). The S corporation is a restaurant with two shareholders. Neither shareholder participates in the business, other than to drive to the restaurant to pick up their monthly distribution check. In fact, one of the shareholders lives 2 1/2 hours away from the restaurant. They have a manager in place (who is a family member, a nephew I think)who handles all aspects of the restaurant. This includes hiring, firing, vendor selection, you name it they do it. And when they cannot get something done, the manager calls me and I help get the matter resolved. The shareholders basically invest the money, get the restaurant open and sit back and collect the profits. Per my phone call with an IRS agent today, he informed me that even minimal services performed by the shareholder would result in some form of salary payment. Well, I do not consider driving to a restaurant to pick up a monthly check a form of "minimal services". I cannot find any IRS law that clearly defines minimal service. All of my research appears to not require the salary if the shareholders do not perform any services for the business. Does anyone else have any experience with this subject and could you point me in the right direction? One of the shareholders has ownership interest in numerous S corporations, (of which he provides NO services - all the businesses are located in a town other than where he lives, usually up to an hours drive to the closest restaurant.) Your comments will be greatly appreciated! | |
| 24 March 2007 | |
| In reading through this thread one topic has not come up which I believe is very important when dealing with this issue. An S-Corporation is a corporation and if it acts like a corporation is suppose to act it makes for a great defense on these type of challanges. Address shareholder/Director/Officer Comp in the minute book. If you are going to have little or no Comp due to Financial constriants indicate that and state why. In other words if the debt ratios of the Corp are way out of line, even shareholder debt, that IS (have aurgued and won) reasonable reason for reduced Comp. The requirement for shareholder comp is judged by what the shareholder actually does and the situation the corporate entity finds itself in. If he is an investor in essence a Small Directors Fee and covering cost will keep you out of trouble with the Service. Accountants tend to get Bogged down with this issue. If a Lawyer Bills 2300 hours and claims 15,000 in w-2 income and 150,000 in distributions he is going to have trouble with an examination. These issues just take a common sense approach, IMHO. | |
| 24 March 2007 | |
| Cdwoods, wrap up the audit, request conference with manager, then appeals if necessary. In your unique case, I think no salaries are appropriate since there are no services, and I think you will win in appeals, but have to go through the administrative levels if you hope to recover your fees in the event of tax court. Good luck. Let us know how it goes and how much time it took to get your truth recognized by the service. | |
Cdwoodscpa (talk|edits) said: | 24 March 2007 |
| Kevinh5, Thanks for the moral support. Another CPA in my office wants me to go straight to the manager on this one. She believes the auditor has already made up his mind before he has even been presented with any facts. We have not even had our initial meeting, only a telephone call up to this point. However, when I explained to the agent that the only participation involved was picking up a monthly distribution check, he indicated that if in the course of picking up the check, he helped deliver food to a table, this would constitute taxable services subject to wages. We both feel this is absurd! Armed with this information, would you immediately contact the agent's manager or would you wait to see how it played out at the initial meeting? I have always been one to treat agents with "peaches and cream" due to the fact I believe you will get nowhere by making an auditor mad. This method has proven successful for me in the past. What is your opinion? | |
| 24 March 2007 | |
| See where it goes, stay calm, you don't want her taking out her frustration on your client by digging until she finds something else. | |
| 31 March 2007 | |
| Peteo et al - Thought you might find this interesting, if you haven't seen:
"Johnny" Edwards 1998 tax return (PDF file, $360,000 salary, $5 million S corp profit distrib): http://www.rothcpa.com/archives/000873.php - CPA article discussing the same. | |
| 9 April 2007 | |
| My husband and I own an LLC and file as S Corp, we are each paid a monthly salary,and filing 941 and tax payments. Our CPA wants us to increase our withholding to 20% and also make $2000.00 quarterly ES payments. If we need a certain amount of money each month for our personal bills, do we increase our Gross wages in order to make these payments and extra withholding? Or do we just pay the taxes next April 15th as needed drawing from the company? To me it's like robbing Peter to pay Paul. When the bottom line is it's all coming from the company anyway. Am I required to make these ES payments or may I just wait and pay more if needed at tax time? | |
Bottom Line (talk|edits) said: | 9 April 2007 |
| If you don't pay in enough during the year, you can get a penalty. | |
| 9 April 2007 | |
| Seems if you can't live on your after tax income you've either got to get more income or reduce your outflow. Maybe your CPA didn't want to tell you to make some hard choices. | |
| April 9, 2007 | |
| You don't have to make Es's if you can cover the taxes due with a bonus that's less than your gross wage from the S corp. Chat with him some more, after next week, you may have misunderstood. I've had clients who thought I was setting their take home pays...like I have that kind of power. | |
Bottom Line (talk|edits) said: | 9 April 2007 |
| I usually try to keep people out of the estimated tax system and instead adjust the withholding on their wages. Sometimes they don't even receive a check because the net check is set aside for withholding. | |
| 9 April 2007 | |
| let them try to live on THAT income!!! That will teach them. | |
Bottom Line (talk|edits) said: | 9 April 2007 |
| It's all in planning ahead :) | |
| 14 April 2007 | |
| i read the entire thread - useful. thank you.
im a S corp and wondering what to do: i didnt take a salary for 2006 and profit for the company was $29K gross sales were $240K if i put 0 as the salary - that is true as i didnt pay any taxes. yet i may get audited. if i put 10K as the salary - that isnt true unless i pay back SS taxes - how do i do that and is it worth to pay the late fees/penalties? i see some people saying that i need to pay that as a bonus and pay all of it as salary - but i am too late to pay tax on it - help :) thanks ben | |
| 16 April 2007 | |
| My wife and I are the only shareholders of a Florida S Corporation, and we started a new DBA home-based business this year under the corporation. Since the profits were small, we are taking them all as wages. My questions are, do we need to send ourselves a W-2? Otherwise, where would we report the income on our 1040? Are we considered self-employed, or employees of the corporation? How and where do we pay our SS and unemployment taxes. Thanks in advance! | |
| 16 April 2007 | |
| When you pay yourself wages you have to file quarterly return. If you didn’t, and do it now (and file w-2), you’ll get penalty for late filing.
You have following options: 1. file late quarterly reports, and w-2 and pay late penalties, ss and unemployment taxes 2. Write yourself 1099-misc instead, and treat yourself a self-employed this year, pay ss tax. 3. Don’t receive any compensation and treat everything as a profit from your company. Don't pay ss and unemployment taxes. The correct way is the first option: you pay here ss and unemployment tax. To avoid penalties, you can choose the second option. You pay only ss tax If you have some other income, and already paid SS tax some place else, you probably can choose the 3rd option (if your business income is not significant). You don't pay ss and unemployment tax, but you might be questioned why you didn't pay. | |
| 16 April 2007 | |
| You have another business owned by the S corporation? I don't understand if what you are saying is that you have an S corporation and the S corporation "owns" an LLC DBA taxed as a sole proprietorship? Or are you saying that the S corporation is paying you wages? The DBA is what is throwing me here :) | |
| 16 April 2007 | |
| Thanks Dsglouise. It appears option 1 is the way to go to keep it all legal. I was just wondering if there might be something I missed.
Sandysea, I've pretty much confused myself as well. The S-Corp is DBA under another name. So I guess the S-Corp is paying us wages since we didn't need another EIN, according to the IRS. I thought there might be a way of paying SS and unemployment taxes without going through the W-2 filings. There won't be any Federal Income taxes due. Thanks. | |
Bottom Line (talk|edits) said: | 20 April 2007 |
| MrNatrl - Please, please, please find a tax professional. | |
| 20 April 2007 | |
| Hey, can't we put a fork in this thread? It's done. Leave it around for good reading, but don't add any more to it. If you have a question about this topic after reading all of this, start a new thread. | |
| 20 April 2007 | |
| I agree that this one is getting hard to follow. I think what we need is an article on this that refers to the various discussions and summarizes the key points. I don't know how the site handles articles, but I know I posted one by accident once! I'd be willing to start it if I could get edits from others. | |