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chrisx16x2008
06-16-2012, 02:10 AM
Hello everyone, I am new here and a new business owner (havent launched yet). I decided to join here for advice and to converse with other small business owners. So I am starting an S corp in Illinois from home and I am the sole employee. I registered with Illinois and the IRS. I know I am supposed to pay myself a reasonable salary according to the IRS but I heard you don't have to pay yourself anything at start-up until you get some decent income coming in. (I think I read that in a post here) Illinois sent me something saying I need to pay my withholding tax monthly and file returns quarterly. Can anyone tell me If I have to do that even with no money? and as far as my salary goes does it have to be a steady amount like say $400 a week or can I just take money out whenever I want and say "add this to my salary"?

ArcSine
06-16-2012, 08:52 AM
The IRS' concern is focused on situations where all four conditions hold:

The corporation is earning positive income.
The corporation's profits are due at least in part to the personal services of the owner(s).
The owners are paying the profits out to themselves in the form of salary and dividends, whereby the salary component of the payouts under-represents the fair value of the personal services rendered by the owners (and equivalently, the dividend component of the payouts exceeds the portion of the corp's earnings attributable to non-personal-service factors, such as invested capital and goodwill).
The amounts involved are significant enough for the IRS to give a hoot.



Hence, until you're generating positive profits of a material amount, salary payouts aren't mandatory. Once you do begin with salary, it isn't required to stick with some steady (weekly, say) amount. Companies have varying cash flows, and IRS doesn't expect companies to bankrupt themselves paying out salaries when the cash flow isn't there. IRS just wants to see that, come year end, the total salary payouts to the owner(s) for the year are commensurate with a reasonable estimation of the value of the services rendered by the owners to the company.

jamesray50
06-16-2012, 11:30 AM
If you are not earning any profits you do not have to pay yourself a salary. However, if you have indicated to the IRS and your state that your business has employees (you) and they have assigned you a filing frequency for your payroll taxes, you will be required to file a zero payroll return that corresponds to the filing frequency they assigned you. If you do not file a zero return you can be subject to a non filing penalty. You will also need to register with the local taxing authorities (city, county, school). You don't need to register for unemployment until you have payroll and reach the threshold for your state.

chrisx16x2008
06-16-2012, 03:12 PM
Alright so if I don't have to stick to some steady amount for salary how can I pay myself? Can I just write myself a check from my company and then record the withholdings etc.. Or how can I get the electronic checks given out by all the other places I have worked with the gross pay,net pay, and deductions itemized?

Evan
06-17-2012, 03:23 PM
I'd echo Jo Ellen's comments and suggest not paying a salary until operations begin and you're able to actually "compensate" yourself.

When you do pay, you (employer) are required to withhold all of the required taxes, and pay your portion as well. You are also required to hold all the proper insurances (e.g. worker's compensation) that are generally required for corporations with employees. It is assumed that you know all of this, which is why it's best to have the guidance of either (or ideally both) a qualified attorney and accountant. Lack of knowledge is not an excuse under the law.

Business Attorney
06-18-2012, 01:55 PM
If you have no payroll, you have no monthly withholding requirement. However, as Jo Ellen noted, you MUST file the quarterly IL-941 even if you had no payroll and no withholding during the period. The instructions to Form IL-941 also tell you not to leave the lines for payroll and withholding blank - you should enter 0 on those lines.

chrisx16x2008
06-18-2012, 09:54 PM
If you have no payroll, you have no monthly withholding requirement. However, as Jo Ellen noted, you MUST file the quarterly IL-941 even if you had no payroll and no withholding during the period. The instructions to Form IL-941 also tell you not to leave the lines for payroll and withholding blank - you should enter 0 on those lines.

So I don't have to file the monthy IL-501?

Business Attorney
06-18-2012, 11:09 PM
You may want to confirm it with the Illinois Department of Revenue but my understanding is that the Form IL-501 is a payment coupon, not a return, and that if you have no payments then you do not file the payment coupon. Of course, other than spending money on postage and an envelope every month, there is no harm in filing a payment coupon with all zeros if you have any doubts.

chrisx16x2008
06-19-2012, 12:36 AM
yeah wednesday I am going to call IDOR bceause I have to talk to them about a few things. I will bring this up and ask about it.

chrisx16x2008
06-22-2012, 02:38 AM
For anyone interested.. The IDOR said I do not need to file te payment coupon but I do need to file the quarterly return to keep it active. I have a quick queston for anyone to anyser too.. I am currently taking inventory of business assets like tools, computer, etc.. How do you know what to record? Like a computer is obvious.. but say I use a pen in my office that really isn't necessary to record is it? and while the pen isn't necessary say say hypothetically my corporation is HUGE and I order 10,000 pens for employees all over. THAT might be something to record. When is the cut off line?

jamesray50
06-22-2012, 10:55 AM
Funny you should mention that about the pen. If a fixed asset has a useful life and is above a threshold value that the company sets, record it as a fixed asset and depreciate it over the value of it useful life, if not, expense it. In my opinion, a pen has no useful life. Twenty years ago, when I first started in the bookkeeping business, I started out as a fixed asset clerk for a very large corporation that was moving all their small locations to one large new location. Everything in the new location was new, they were getting rid of everything in all the old locations. My job was to find all the old assets so they could be deleted from the asset lists and add all the new items to the asset lists. They kept track of every single thing they purchased, including desk accessories and office supplies. It was a nightmare trying to locate all the old fixed assets after everyone had moved to the new location. The fixed asset list had the location of where the item was suppose to be located, and if it wasn't there I was to go to the new office of the person and ask them were it was. Most of the time it was an executive I was having to visit. These executives did not appreciate a fixed asset clerk questioning them on the whereabouts of a stapler or pair of scissors that was 10 years old. Of course they had no idea where the item was. I suspected it was in their home office. It took over 9 months to finish that job and to this day I still don't know why they added everything to the fixed asset list. I have never run across anyone else who did.
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chrisx16x2008
06-22-2012, 07:20 PM
Wow that would be very tedious and annoying. but yeah I will go ahead and make fixed assets stuff that generally costs more than $500 and will be in use for more than a year; the rest as expenses. Right now I have only thought of literally day to day operation expenses but I was thinking say it's me and a couple employees and I buy a mini fridge using business money, let's say for about $200. Then I stock with sodas for my employees to freely grab while working. Would I make all that an expense or is that something different entirely? What will the IRS say about that?

BP Writer
06-28-2012, 10:49 PM
...My job was to find all the old assets so they could be deleted from the asset lists ... Most of the time it was an executive I was having to visit. These executives did not appreciate a fixed asset clerk questioning them on the whereabouts of a stapler or pair of scissors that was 10 years old.

Wow, finally someone who can probably understand my inner trauma!! When I was a college student a few hundred years ago I had a summer job in the accounting department of an insurance company. They were going to microfiche (younger people might have to google that term) tons of documents and I spent 3 months removing staples from documents...all day, everyday.

Anyway Chris, I don't know the technically correct answer to the fridge/soda question -- but I will share how I have approached it: I would expense both the fridge and the sodas. My view is that at a certain point common sense should prevail, and IF the IRS wants to hassle me about improper treatment of a miscellaneous $200 item...well, I'll just have to run that risk - in reality, as a small business, I run much, much greater risks than that every day.

Evan
06-30-2012, 10:28 PM
Fixed asset policies vary, but I generally will capitalize anything over $250, and expense anything below. However, you need to view that in total for the year. If you buy 10 mini fridges during the year each for $200, then that should be capitalized.

I've seen more aggressive fixed asset policies, with amounts up to $1,500. But these were much larger businesses, and were not focused on saving a few dollars on their bottom line... it was just a matter of practicality for the business. If that's what is deemed reasonable, so be it.