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    8 Replies Latest reply on May 7, 2008 11:41 AM by Santa Fe CPA

    S-Corp formation, what is required for salary and taxes

    alohara Newbie
      I'm in the process of launching a small business and have chosen to form an S-corp for liability protection and longer term tax reasons. I plan on initially acting as the CEO, President, and Treasurer. The business won't generate a profit for at least six months, and even then it would not cover a reasonable salary for the above officer positions. My question is for this initial 6-12 month period do I need to pay myself a stated salary for one or all of the above officer positions. I understand that officers should be paid a reasonable salary but can I pick something as simple as $12K per year for all positions total? Is my total obligation for corporate taxes at this point just paying the employment taxes for the salary? Or as the owner do I not need to worry about any of the salary and payroll/SS/fica tax issues?

      Thanks for all responses.
        • Re: S-Corp formation, what is required for salary and taxes
          LUCKIEST Guide
          S-Corp formation, what is required for salary and taxes, Welcome
          Tell us more. As the owner you DO NOT need to worry about Salary,
          *BUT do need to stay on top of *payroll /SS /fica tax issues?
          Where are you (like city and State). What kind of business??
          How soon do you plan on opening?? Do you have an Accountant??
          Have you developed a Business and Marketing Plan??
          Do you know about SCORE?? SCORE is FREE and can help you succeed
          and maybe even answer your tax questions.
          Good luck, LUCKIEST
          • Re: S-Corp formation, what is required for salary and taxes
            Johnsquest68 Adventurer

            My business is also incorporated as an S Corporation. The basics are keep your books in order, log everything. keep a seperate folder for your expenditure receipts, anything and everything you purchase for the business, paper, computers, pens, pencils, etc. Keep the receipts for tax purposes. If you haven't done so already, get yourself a good ledger contact an accountant, and retain an attorney. Three very good books for you to have are, "tax savvy for small business", "Legal forms for starting and running a small business" and "Legal guide for running a small business". They are all printed by NOLO.

            We can help you further with a little more information about your business.
            1 of 1 people found this helpful
              • Re: S-Corp formation, what is required for salary and taxes
                alohara Newbie
                Thanks for the information. I'll checkout the books you've listed. I plan on retaining a lawyer and accountant at the appropriate time, but will not do so initially at startup. I plan on using LegalZoom to incorporate and Quick Books for book keeping. I basically need to take that step to setup a bank account, merchant account, and other services in the corporation's name. My main question was do I have to pay myself a salary, and pay the subsequent taxes that go along with being a salaried employee. I've read that the IRS requires that a reasonable salary be paid to any employee, including officers, but is that truly the case in practice when a single-person company is just starting up. I won't likely have any revenue for the first 4+ months of startup. Thanks,

              • Re: S-Corp formation, what is required for salary and taxes
                Santa Fe CPA Adventurer

                By Internal Revenue Service definition you are, as an officer and director, an employee of the corporation and as such you are required to pay yourself a salary. That said, the business needs to provide sufficient income and positive cash flow to cover the payments. If you are operating in the red then the requirement becomes moot. The salary paid must be "reasonable" in comparison to the income of the business and salaries paid by like businesses of similar size. The principal behind the regulation is to prevent the pass through of income to the shareholder(s) without the FICA and MC taxes.
                To stay out of trouble from the start, you should hire an accountant/bookkeeper who is able to use QuickBooks the "Right Way" to keep you on the straight and narrow. I am a Certified QuickBooks Professional Advisor and have seen too many accounting files made a mess by the owner doing his own bookkeeping.