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Thread: Paying myself: S-corp

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    Default Paying myself: S-corp

    I am new to the whole business owner situation, and I have a few questions about paying myself.

    I am the President/CEO of a S-Corp. There are no other officers/stockholders in this company, just me. Right now I pay myself just as any other employee. I only pay myself when I work, just like everyone else. However, being a construction based business, without contracts the hours get slow and I would like to know other ways to pay myself. The company is only a little over a year old, and I really don't want to start paying myself a salary.. as I don't know how much I should pay myself right now, I'm working more on getting the company built up. With personal obligations popping up, I was wondering if there's a way to say.. withdraw $5-10k from the business account and put in my personal account? Does that draw red flags for the IRS, or do I just let me accountant know what moneys I used to personally pay myself when she goes to do my taxes?

    I'm don't really understand the whole paying myself dividends/profits.. just not sure if it's possible to take some money out of the account without it sending red flags.. or just not something I'm allowed to do.

    Thank you

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    I'd consult with your CPA about this specifically, as it will depend on your specific facts and circumstances.

    You need to pay yourself a reasonable wage/salary based on your contribution to the company. So if you're paying yourself for the time you work, at a reasonable rate (what you'd hire someone else to do this same work), you'll be fine. If you find that isn't enough, you could issue a bonus (subject to payroll taxes), or perhaps a distribution/dividend may be best. I have no idea as to your specific numbers, and all of those would influence the answer.
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    I second Evan's recommendation to sit down with your CPA, and as he says, specific advice will depend on the specifics and particulars of your situation.

    Quote Originally Posted by agalihax0 View Post
    I'm don't really understand the whole paying myself dividends/profits.. just not sure if it's possible to take some money out of the account without it sending red flags.. or just not something I'm allowed to do.
    A C-corp pays taxes on earned profits, then when/if profits are distributed to shareholders via dividends, shareholders pay taxes on those dividends. A key benefit of an S-corp is avoidance of this double taxation. Your S-corp doesn't pay taxes on it's profits, you pay the taxes on those profits on your individual tax return. When/if you take those profits out via a distribution, no additional taxes are due (usually).

    S-corp owners would be inclined to not pay themselves ANY salary/wages in order to avoid payroll taxes – thus, as Evan mentioned, the IRS requires that such owners pay themselves reasonable compensation via payroll – which it sounds like you are doing. Bottom line – although your CPA will have to confirm based on your specifics - most likely you will not have any problem in taking distributions (usually distributions are better than bonuses because bonuses attract payroll taxes).

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    Member Needs New Keyboard Array jamesray50's Avatar
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    Hi - I am a couple of months late to this thread, but I use to work as a bookkeeper for a CPA firm. We had clients like you all the time. They would take a draw during the year, and at the end of the year, the CPA would determine if they needed to have a paycheck and how much it needed to be. So, the answer to your question is yes, you can take a draw during the year and at the end of the year, if you had a net income you would take a paycheck with taxes withdrawn and pay in those taxes. Your CPA can help you determine the reasonable amount of the paycheck. Hope this helps.

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    Member Needs New Keyboard Array huggytree's Avatar
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    i pay myself monthly whatever i feel like....if i need extra i take out more!

    if the profits sitting there why cant you take what you want???

    your going to pay taxes on all of it at the end of the year anyways

    to me paying yourself a wage per hour is odd when your the owner....you dont make a wage...you make a profit

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    Member Needs New Keyboard Array MyITGuy's Avatar
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    Quote Originally Posted by huggytree View Post
    i pay myself monthly whatever i feel like....if i need extra i take out more!

    if the profits sitting there why cant you take what you want???

    your going to pay taxes on all of it at the end of the year anyways

    to me paying yourself a wage per hour is odd when your the owner....you dont make a wage...you make a profit
    Depends on the business structure. As an S-Corp the company needs to pay the owner(s) a reasonable wage, then any extra profits can be taken out via distributions if elected.

    Yes, your going to pay taxes on it either way, but you want to ensure your not being overtaxed by paying everything as a salary/bonus or etc..
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    Member Needs New Keyboard Array huggytree's Avatar
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    i file as an S-corp

    my reasonable wage is 50% of the profits...i pay myself what i need and my accountant divides it into Wages and Profits at the end of the year

    i write my monthly check out of my 'draws' category in quickbooks....i have no separate account for wages and a separate one for profits.....my accountant figures that out in December

    i think the writer of this post is over thinking it ....pay yourself what and when you want.......your accountant should be able to set it up for you and handle it

    every year your wages and profits will be different and need to be adjusted by him depending on how much you made....so what does it matter how much you take out each month?

    i pay almost all my taxes at the end of the year....i dont pay monthly....i do a bit every quarter and pay $40k-60k in December ... my accountant divides everything up into wages and profit and tells me how much to send in to the IRS
    Last edited by huggytree; 09-12-2012 at 02:13 AM.

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