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3 Replies Last post: Feb 23, 2008 8:07 PM by elpelp

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

Jan 7, 2008 9:42 PM

j.senger 4 posts since
Jan 7, 2008

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)?

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LUCKIEST 5,722 posts since
Aug 6, 2007

1. Re: What wages do I need to pay myself if I form an S-corporation? Jan 7, 2008 9:57 PM

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

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Lighthouse24 2,232 posts since
Oct 10, 2007

2. Re: What wages do I need to pay myself if I form an S-corporation? Jan 8, 2008 12:28 AM

As a sole proprietor, you're not required to pay yourself any kind of wage. When you form an S corporation, you are required to pay yourself (as an officer of the corporation) a "reasonable salary" even if the corporation loses money.

You'll elect to use either a cash or accrual method of bookkeeping for your S corp. If you're using cash now and use cash then, the bookkeeping won't change much once you're up and running -- although you will have to do some work to transfer property from the old business to the new one, because everything transferred will no longer be your personal property (it will be part of the company's capital assets). There are tax laws (IRS Pub. 551, I think) that govern how you value all that.

Hope this helps. Best wishes.

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elpelp 6 posts since
Feb 23, 2008

3. Re: What wages do I need to pay myself if I form an S-corporation? Feb 23, 2008 8:07 PM

here's a good post comparing legal entities and highlights some payroll items for an owner an S-Corp. http://www.bizscoops.com/2008/02/18/forming-a-new-legal-entity/

Basically, you need to pay yourself a reasonable salary for what it would cost to have someone else perform your duties. it's a gray area - just need support.

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ForumsManaging Employees and HR

This Question is Possibly Answered

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

Jan 7, 2008 9:42 PM

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