Home: Message List - What wages do I need to pay myself if I form an S-corporation?

Re: What wages do I need to pay myself if I form an S-corporation?

Bridge — Wed, 11 Jun 2008 17:27:29 GMT

The IRS expects you to pay yourself a "reasonable" wage, which they do not define. It has nothing to do with ratios and more with FMV. You can not make $50,000 and pay your self $5,000 in salary only becasue it is a "good ratio".

If you are audited and the IRS determines you underreported salary, they can elect to classify all your income as salary, impose fees, penalties, etc.

You also mention you are "capitalizing all expenses." I am not sure what you mean by this or why you would be doing it?

Generally, for tax purposes, you are better off to EXPENSE all costs not CAPITALIZE them (this reduces reported income). Because of this, the IRS has strict guidelines on what costs can be capitalized and which need to be expensed.

It sound like you would benefit from the advice of a good small business accountant.

Best of Luck!

Re: What wages do I need to pay myself if I form an S-corporation?

sonicreations — Wed, 11 Jun 2008 13:45:36 GMT

You can make your salary anyting you want. John Edwards takes $100k a year in salary and about $8m a year in dividends, I use that ratio. Nothing says you have to pay yourself a wage, thats the beauty of it. That said keep abreast of changes in the tax code; there have been rumblings about the "unfairness" of it. I must ask, why do you capitalize all of your expenses? What about current expenses?

Re: What wages do I need to pay myself if I form an S-corporation?

intechspecial — Tue, 08 Jan 2008 09:25:06 GMT

http://www.sba.gov

The SBA gives free business advice.

So does www.score.net.

Welcome to the community!

Re: What wages do I need to pay myself if I form an S-corporation?

Lighthouse24 — Tue, 08 Jan 2008 05:32:35 GMT

I responsed to your other post with the same subject/questions:
http://smallbusinessonlinecommunity.bankofamerica.com/thread/2605

Re: What wages do I need to pay myself if I form an S-corporation?

CorpCons08 — Tue, 08 Jan 2008 03:30:15 GMT

Are you having computer problems?
You're still double posting.

CC08

Re: What wages do I need to pay myself if I form an S-corporation?

j.senger — Tue, 08 Jan 2008 03:25:46 GMT

My reasons to go to an S-Corporation was so i could pay myself dividends (which do not pay FICA TAX). So what I was asking is has anybody had experience with the IRS as an S-Corporation?
And how little wages and how much dividends can I pay myself without getting audited?

Re: What wages do I need to pay myself if I form an S-corporation?

j.senger — Tue, 08 Jan 2008 03:24:25 GMT

Re: What wages do I need to pay myself if I form an S-corporation?

LUCKIEST — Tue, 08 Jan 2008 02:59:02 GMT

Why did you post this question TWICE??
You are mixing oranges and apples. There was a recent post about the cash basis from Buffalo.
If you are a sole proprietor or an S Corp you have to make a one time election to be " cash basis" or
" accrual basis" . The book keeping will NOT change when you go to an S-corporation.
PAY. Again as a sole proprietor, you do NOT take pay, you take a draw.
As a Sub S, you can pay yourself whatever you want as long as the business has the cash.
Do you have an Accountant??
LUCKIEST

Re: What wages do I need to pay myself if I form an S-corporation?

CorpCons08 — Tue, 08 Jan 2008 02:50:01 GMT

There really is no reason to double-post.
Somebody WILL answer your question.
Be patient please.

CC08

What wages do I need to pay myself if I form an S-corporation?

j.senger — Tue, 08 Jan 2008 02:48:38 GMT

Currently as a sole proprietor I have a handy man business and a lawn service. About 70% of the time I work by myself. To satisfy IRS, since I do most of the work myself can I pay myself the same market wage of the employees I hire doing the same work? Or do I need to pay myself a supervisers wage even though I am working by myself?

Also we currently keep books on a cash basis and capitalize all expenses. Will the book keeping change much when we go to an S-corporation (in Texas)?