Tax planning for S Corp questions

[John Qu]

Hello all -

We (my spouse and I) are about to register an S Corp. It will be 51% owned by my spouse and 49% by me (so it can be a woman-owned business). I'll be paid through this S corp. Billed revenue for the Scorp this year will be about 28K. realized revenue will probably be zero (due to billing and payment timelag).

The plan is to pay myself just enough to max out my 401K and company match of 25% based on next year's rate ($140K/year). Residual amounts will be paid to my spouse as the 'officer' so the company can give her a 25% match as well (She has a full time job with a 401K).

Questions from a tax planning/cash flow perspective:

- If the company does not have any cash income. Will it have any taxes due? Payroll as well as income?
- The co. does not have cash flow. Does it need seed capital/loan to be able to meet payroll obligations to me?
- My salary will not meet the 17.5 threshold to max 401K contributions (because my income after fica will be less than that for the duration of this year). Can I still make catchup contributions (5,500, I'm over fifty and have outside funds).
- Can I pay myself more this year (2014) and reduce my salary for 2015 (to max 401K and catchup contribution) or would that be frowned upon by the IRS? Alternatively, can the company pay me a "sign on" bonus to allow me to max my 401K and catch-up contributions? Salary will be the same rate going into 2015.
- Is there a required minimum for payment to an officer?

Thanks!

[Freelancier]

Are you going to do your accounting based on cash or accrual method?

Yes, if the company has no cash flow, I don't know how you'll be able to pay yourself unless you do seed money. or you could just not pay yourself until you start having revenue. Cash is king, don't start spending on salaries until you have the money in hand.

I don't think the 401k has any "catch up" provisions that a typical IRA would have (but you get to do 25% of your salary which makes up for it).

I think for the rest of the questions, you should sit down with an accountant and plan this out. There may be other factors you're not mentioning that could conflict with the rules or with your needs. But I'd still go back to: cash is king, don't sock away money the company needs to stay afloat until money starts flowing in.