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9 Replies Last post: Jun 11, 2008 1:27 PM by Bridge

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

Jan 7, 2008 9:48 PM

Click to view j.senger's profile Start-up 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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Click to view CorpCons08's profile Mogul CorpCons08 1,127 posts since
Nov 14, 2007
1. Re: What wages do I need to pay myself if I form an S-corporation? Jan 7, 2008 9:50 PM
There really is no reason to double-post.
Somebody WILL answer your question.
Be patient please.

CC08
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Click to view LUCKIEST's profile SCORE LUCKIEST 5,720 posts since
Aug 6, 2007
2. Re: What wages do I need to pay myself if I form an S-corporation? Jan 7, 2008 9:59 PM
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
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Click to view j.senger's profile Start-up j.senger 4 posts since
Jan 7, 2008
3. Re: What wages do I need to pay myself if I form an S-corporation? Jan 7, 2008 10:24 PM
in response to: LUCKIEST

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?

S

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Click to view j.senger's profile Start-up j.senger 4 posts since
Jan 7, 2008
4. Re: What wages do I need to pay myself if I form an S-corporation? Jan 7, 2008 10:25 PM
in response to: LUCKIEST

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?


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Click to view CorpCons08's profile Mogul CorpCons08 1,127 posts since
Nov 14, 2007
5. Re: What wages do I need to pay myself if I form an S-corporation? Jan 7, 2008 10:30 PM
in response to: j.senger
Are you having computer problems?
You're still double posting.

CC08
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Click to view Lighthouse24's profile Mogul Lighthouse24 2,231 posts since
Oct 10, 2007
6. Re: What wages do I need to pay myself if I form an S-corporation? Jan 8, 2008 12:32 AM
I responsed to your other post with the same subject/questions:
http://smallbusinessonlinecommunity.bankofamerica.com/thread/2605
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Click to view intechspecial's profile Mogul intechspecial 1,430 posts since
Jan 6, 2008
7. Re: What wages do I need to pay myself if I form an S-corporation? Jan 8, 2008 4:25 AM
http://www.sba.gov

The SBA gives free business advice.

So does www.score.net.

Welcome to the community!
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Click to view sonicreations's profile Start-up sonicreations 1 posts since
Jun 11, 2008
8. Re: What wages do I need to pay myself if I form an S-corporation? Jun 11, 2008 9:45 AM
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?
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Click to view Bridge's profile Mogul Bridge 301 posts since
Jun 3, 2008
9. Re: What wages do I need to pay myself if I form an S-corporation? Jun 11, 2008 1:27 PM
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!
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