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How to take a S Corp Distribution

Hello Linda , I saw some funny postings yesterday and I hope that sillypeople refrain from spoiling the value this web site adds.
Now to my question :

If I am a single owner / employee S Corp who made 25000$ last year and have 16K in payroll and 4K in expenses , why can't I take 5K in distribution ? And if I can , then how do I get it - do I give myself a 1099 MISC ?

Next questions is that if I do not take tis distribution, still I pay the taxes as pass through entity , so what is the deal about not taking the distribution ? I do not understand. Isn't it simple for me to even out by leaving the S Corp at 0 dollars on day one of the new calendar year ?

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Account type for S-Corp distributions

I did not receive an answer for this question last year so I am asking it again.

Regarding this suggestion you made back on 2008-01-21:

'I create a "Distributions" equity account in QB. You can use the "Tax-Line Mapping" field to map entries in the account to "Schedule K-Other Items: Property Distributions (including cash)".'

When I import from QB into TT, it puts the EOY account balance of this Distributions account into 1120S, Schedule K, line 16D, not the amount of distributions for the year. This includes the previous year (first year of our business). Is this correct? Isn't line 16D supposed to contain just the current year distributions? This total amount carries to the Distributions line on Schedule M-2 and that appears to be expecting a one year amount. What am I doing wrong?

Also, another person pointed out that QuickBooks give you a warning when editing the account, that the account type is incorrect for the tax line mapping.

Putting the above two issues together imply to me that the account type for distributions should be an expense account. The amount imported is an annual amount and you don't get a warning from QuickBooks. But, now we have an incorrect increase in expenses.

Thanks, Kevin

QB-TT Distributions Mapping

Hi Kevin,

There's no way to map change in the distributions account directly in to TT, only the ending balance. I use the that mapping to get at least something into TT.

Distributions are absolutely not an expense account. They are a reduction of the shareholder's capital account.

The error checking should show the out of balance amount which makes it easy to find.

Since there's no way to map this directly, this is my personal preference for handling the distributions reporting.

L:)

Please be reminded that an S

Please be reminded that an S Corporation is a "flow through" entity in that all of the net earnings from the S Corporation flow down to and are reported on the owner/shareholder's personal return. Therefore careful consideration of these issues and tax planning for each personal shareholder's other income, itemizations, exemptions, etc. should be considered and carefully contemplated when extending S Corporation owner's personal returns. Keep in mind that the extension of the corporate return does not also automatically also extend the personal return which is due on April 15, 2009.

Shareholder distributions & Loans from Shareholders

Hi,

I have been reading all of the postings and responses and have been learning alot. Thank you for all of the information. I have an S-corp, and unfortunately have had to use 3 different accountants to date. I am in process of doing my 2007 & 2008 tax returns.

I have a loan to the shareholder with a balance due me in excess of $40k. My M-2 from 2006 shows a balance of $4,903. The net loss for 2007 is over $25k. Can we use the loan from shareholder to make the basis enough to write off the entire $25k loss for 2007?

If not, how can we change the situation so we could write off the entire loss? There will also be a loss in 2008 between $10-$20k. The business was temporarily shut down for the last 9 months of 2008 due to health reasons, so the shareholder payroll was low.

thanks
Ken

Shareholder Contributions?

Hi Ken,

Yes, shareholder loans also increase your basis. Be sure you have a note that clearly outlines the terms of the loan
including interest and a payback schedule.

L:)

Loans to shareholders

How does this increase the shareholder basis?

S Corp distributions

My partner and I have a architectural design build firm
We do not take payroll but take distributions as compensation for officers.
We each took 75,000 last year, after our expenses our K-1 distribution was about 9000 each.
We will report this on our individual tax forms on Schedule E.
Our bookkeeper says we need to file a 1099-MISC for the 75000 as well.
I believe this is incorrect.
Could anyone clear this up for us.
Our total income was 400,214 with total deductions of 383,477.
We had a build project with a majority of that cash flow going to building supplies and sub contractors.

No 1099-MISC for S Shareholders

You are correct.

Your distributions will be reported as part of the K-1.

However, It sounds to me like these distributions are really wages paid for services rendered & should be going through payroll.

By statute, S shareholder/officers are employees of the corporation and should be paid a reasonable salary.

Hope this helps
L:)

2008 vs 2009 distribution

All other issues aside on this original questions, I am doing the taxes today on my S corp I wish I had taken more distributions from last year's profit. Can I legally take a distribution now and mark it on the books and my K-1 for 2008 as Brenda asked?

I could take it now, but business is bad and I don't want to get dinged for having taking distributions this year without continuing my salary (if things get bad enough that I have to stop my salary).

looking forward to this answer

This is exactly what I am trying to find out... please respond to this question... THANKS

Hello Linda , I saw some funny postings yesterday and I hope that sillypeople refrain from spoiling the value this web site adds.
Now to my question :

If I am a single owner / employee S Corp who made 25000$ last year and have 16K in payroll and 4K in expenses , why can't I take 5K in distribution ? And if I can , then how do I get it - do I give myself a 1099 MISC ?

Next questions is that if I do not take tis distribution, still I pay the taxes as pass through entity , so what is the deal about not taking the distribution ? I do not understand. Isn't it simple for me to even out by leaving the S Corp at 0 dollars on day one of the new calendar year ?

Distributions

Assuming this is the first year of the S-Corp and the $4k of expenses includes the payroll taxes, there's nothing wrong with taking a $5,000 distribution. If you made no contributions or other distributions your basis at the end of the year would be $0.

$-0- Beginning Basis
$5K Taxable Income ($25K income - $16K Payroll - $4K other)
$5K Less distributions
-----
$-0- Ending Basis

However, my experience is that it's never quite that neat.

Another disadvantage of fully depleting your basis is, if you unexpectedly had a loss one year, you will be unable to deducting from your other income because you will not have sufficient basis.

As far as "how do I get it?" Write yourself a check with "Shareholder Distribution" in the memo. Report it on the 1120 Schedule K, line 16d, Property Distributions. It should also show up in your shareholder basis report as distributions reduce shareholder basis.

DO NOT use form 1099-MISC. That will completely confuse things.

You will need to pay the tax on the $5K of taxable income whether you take the distribution or not. Remember S Corps don't pay taxes a the corporate level. Only the shareholders pay taxes on their pro rata share of the net income. The distribution is not an expense of the corporation. Rather it is a return of capital to the shareholder.

Another alternative is to take a distribution equal to the tax. For instance, say you owe an additional $2250 on the $5K of income from the S Corp. Just take a distribution of $2250. That way you still have $2750 of basis & the S Corp is paying for its taxes.

Yes, I know this is confusing, but I hope this helps.
L:)

Distributions to offset income reported

Linda
Thanks so much for this very informative site.
I have an S corporation. Usually I pay enough salary to make end of the year income/loss pretty low (approx $1000 one way or the other)to report on my 1120S. This year it is $7000 income, so it is costing me about $3000 on my personal income taxes. In the past I have never taken a distribution, but I am wondering if I should do one for $7000 for 2008. If I do not do this, I would probably just use the business income to pay salary in 2009, thus paying taxes on it again. It just does not seem right to leave the money after I pay taxes on it.

I have had the S corp since 1992 and over that time my yearly losses and SEP-IRA payments have made my cash and B/L about (-120,000). I do not know if that affects my ability to take a distribution, or if distributions are based on yearly income and loss.
Any info is greatly appreciated.
THANKS!!!

Distributions vs Salary

Hi,

I'm not sure I understand all the details. The thing that most concerns me is it sounds like you have a negative equity. If you take a distribution without sufficient basis, then that distribution is taxed as income.

If you have sufficient basis, then you could take a 2009 distribution for $3000 to help you pay the tax on the S corp income. The distribution is not a deductible expense for the corp.

If you take it out as salary or bonus, then you'll be paying income & payroll taxes on the payment.

This is way lots of S sharholders take a reasonable salary then a distribution in April to cover the tax liability for the S corp. This covers you against the reasonable salary bugaboo while helping you pay the taxes with the least cost to you & the corp.

Hope that helps.
L:)

BASIS clarification

Linda

Thanks so much for the quick response. And thanks in advance for your patience. As I mentioned to you, I have never done a distribution.. so I am unclear how or if I can do one. Again, it is an S -Corp owned by husband & wife.

Here are some details which may provide more info:
1) On my 1120 S, M-2, my balance at end of 2007 was -22988.
2) My Balance Sheet under CASH totals (-$119742) for end of 2007.
I am guessing that #1 or #2 above is my BASIS. Which one?
and what is Negative Equity?
Instead of too many questions, can you give me any info regarding the above.
Thanks!
john

Basis clarification

Linda
As mentioned above, I believe my basis balance at end of 2007 was -22988. I have been an S corp for 16 years and over the years the loss/gain has been minimal (+/- 1500), so at tax time it didn't hurt so bad (when totals were transferred to my personal tax return). Usually, I just make sure that I pay out enough income as salary, so that the amount at the end of the year is not substantial. This year I did not do it correctly and ended the year with $7000 income. When I applied this to my personal tax return it cost me about $2800 in additional taxes. I was trying to figure out if I could do anything to cover this amount (distribution, etc.)
When I did some searches, I came across the term "Phantom income" and your site. I am really trying to understand better what options, if any, I have at this point. Since I am a one-person S-corp, I do not know if I should take a 2008 distribution (taxable or not) or if I even can take a 2009 distribution.
Thanks so much for your patience and your S-corp knowledge, I have reading a lot of the posts... they are great and I trying to figure out what, if anything, you would recommend.
Have a great day and thanks in advance.
John

Basis Details

Hi John,

Unfortunately, I can't tell you the answer to your questions because I just don't enough details.

If your basis was really -$22,988, then you have been taking losses on your 1040 you were not entitled to or taking distributions in excess of your basis which should have been taxed. Your basis should never go below $0.

Something either is not right, or I don't have all the information. If your gain/loss has been minimal, you wouldn't have the basis to take a distribution. That might explain why your basis is $22k in the red.

I can tell you its too late to take a 2008 distribution, since it's 2009. :) If you took a distribution now it would be a 2009 tax year item.

distribution...why not

Linda

just wrote a long message and it was deleted

Single owner S-corp questions

Hi Linda,

Thanks for the great forum you have here. I have a few questions as I have just incorporated a new S-corp of which I am the sole director and officers, and it is I who will act as the principal consultant and bring in any money that the company makes. I incorporated through "The Company Corporation" on the web, and entered "0 employees" when I filled out the EIN forms. My questions:

- I expect to make about 100-150K per year in profits (revenue minus expense not including salary)

- I understand that I can take a combo of salary (reasonable) and distribution from company profits.

- Should I be taking a salary at all especially since the company has only one director/officer but no employees? Or should I take salary because I am the principal consultant bringing in the money?

- If I take salary, must it be regularly taken? Can it be taken once at year end? If I take a salary, can I determine the amount at year end depending on the profits? Should I have some sort of payroll process? Should I withhold FICA etc.? Should I issue W2s at year end? Do all these things need to be done even for a single employee owner taking salary?

- One of my existing customers wants me to remain a independent contractor and pay me thru 1099. Can I deposit the checks on my ICA invoices into my S-corp and call that S-corp revenue? Or will that be treated as an investment on my part in the S-corp and increase my basis?

- Should I hold regular board meetings and keep minutes etc.? How does that figure for a single person company.

- I would appreciate any usual and normal advice you'd give to a single person S-corp.

Thanks.

Payroll for Single Shareholder S Corp

Hi,

Yes, you should be taking a salary because you are likely the president, CEO, chief cook & bottle washer of your company. As an officer, by law, you are an employee of the corporation and should receive a reasonable salary.

Technically, I doubt you would get into too much trouble by having a salary once a year, but you will still need to file quarterly tax returns anyway, even if you have no payroll, so you might as well pay yourself at least quarterly. However, it's likely you'll need some of the cash in the company to pay your personal expenses. That's why most single-shareholder corporations make payroll on monthly basis.

Your payroll should be the same as any other employee which means you have to withhold & pay FICA, FUTA, tax withholdings and any state taxes. You need to file the quarterly & annual tax returns including Form W-2 & the W-3 transmittal.

On the client, I would try really hard to get them to pay your S-Corp. It's better for them & better for you. They don't have to file the 1099 on their payments to you if you're operating as an S Corp.

You will need to report the 1099 income reported to your SSN on a Schedule C or the IRS will be asking why you didn't report that income on your personal return. I have seen some returns that report the 1099 income and equal amount as cost of goods sold so the Schedule C shows $0 income and that same amount shows up on the 1120S as income. I'm not saying that's right, but I have seen it handled that way. If you opt to go this route you should deposit the checks into your sole-proprietor or personal checking account and the transfer the same amount to the corporation. It's ugly, but at least you'll have the document trail to support how you've handled the income & expense.

The best thing to do have the client write their checks to your S-Corp. You should also give them a W-9 with your S-Corp information.

In lieu of board meetings you can use a Consent of Shareholder to record the actions taken by the shareholders.

Good Luck!
L:)

S-corp taxes vs Employee taxes

Hi Linda,

Thanks for the answer. I have changed the subject line because the form did not keep the previous one, and my new question is on a related but different topic.

In your answers to other posts I gather that we DO NOT WANT to take out all the money from the S-corp as a distribution unless we need the money personally. Why is it a bad idea to have net zero if the money is not personally needed?

Also, in another answer I gathered that an S-corp does not need to pay tax. I am sure I understood this wrong, since here in CA I think there is a minimum of $800 in taxes that the corp has to pay. What I figured is that at year end, we should make sure to leave enough money in the S-corp that results in the $800 in tax, and that this money would not flow through to the owner. If it did, then the owner would pay income tax, and the S-corp has already paid $800 in taxes resulting in double taxation. Since one of the big deals of S-corp is to avoid double taxation, I am sure I am missing something. Please help.

Finally, I cannot predice the cash flow of the corporation very well. Therefore, if I take a regular monthly or quarterly salary (as you recommended), I am not sure that there will be money in the company to pay me that salary in all periods. If this occurs, should I not pay a salary some periods and pay in periods when money exists?

Thanks.

-Sankar

S-corp taxes vs Employee taxes

Hi Linda,

Look forward to your asnwer to the previous post I sent under this heading.

I also wanted to find out how you make money? Is it just the Google ads on your page, or do you also offer tax/other services. If so, where are you located, and how does one find out about the services.

Great forum!

Thanks.

-Sankar

S Distributions

Thanks! I'm frustrated by the spammers too! I try to delete their postings but it's hard to keep up. :(

Anyway, given the situation you've presented let's assume for the moment you don't take the $5000 out of the company.

Your S-Corp will prepare a Form 1120S to report its income to the IRS and show net business income of $5,000. Part of the 1120S return will include a Schedule K-1 on which it will show your share of the company's income. Given you're the only owner, that will be $5,000 of business income.

On your personal tax return the $5,000 of S-Corp business income will flow from your K-1 to Schedule E and finally to line 17 of your 1040. In addition, you will report $16,000 of wages on line 7 for a total of $21,000. Your basis in the S-Corp will be $5,000 more than it was at the beginning of the year.

OK. Now let's say you take a $5,0000 distribution. The tax implications will be the same except that your K-1 will report the $5,000 distribution and your basis will be unchanged from the beginning of the year. You have $5,000 of taxable income which increases your basis & a $5,000 reduction in basis of the $5,000 distribution. The distribution will not show up as taxable income on your personal return because it is the $5,000 of business income from the S-Corp.

Do not give yourself a 1099 from the corporation. If you do that, the IRS will think that should reported on Schedule C & subject to the SE tax which totally negates the benefits of the S-Corp.

The reason why you may not want to bring the income to zero is you may have losses in future years. In that case, you'll need to have basis in order to use those losses to offset income from other sources. For instance if your basis was $0 at the beginning of the year, because this is your first year, and you pay distributions that completely offset your income, you have no basis in the S-Corp. If next year you lose $4,000 you will not be able to deduct it. It will have to sit as a carry forward until you have sufficient basis in a future year.

I realize this is a subtle point I hope this helps clarify things.
L:)

S-Corp Distribution on Personal Return??

Hi Linda,

In your reply regarding S-corp distributions you said that a distribution does not show up as taxable income on the personal return because the distribution is the business income from the S-corp. However, doesn't the S-corp business income flow to the shareholder's personal return on line 17 whether a distribution is taken or not?
Or are you saying that it is the business income minus the distribution that flows to the personal return?

Thank you so much!

Eric

Hello Linda-- Thanks for all

Hello Linda--

Thanks for all of your tax advise and assistance. I want to start a small consulting business as an s-corp and I own the entire company (all the shares) and I am the only officer and was wondering whether about the following:

a) If we assume the company makes $100k in year 1 and my basis is $10k and I am the only officer of the company is it better for me to state my officer compensation in line 7 or line 8 in form 1120s. I guess I am confused about the differences in 'compensation of officers' and 'salaries and wages' aren't these two the same? Isn't the compensation of an officer also a wage?

b) Also is the goal to make the s-corp's income equivalent to zero ($0) to avoid paying corporation taxes and filling out form 1120w? So my basis is $10k and the profit is $100k in year 1 is the goal to take salaries, expenses and distributions in the s-corp all the way to $100k so that the corp pays zero IRS taxes other than payroll taxes?

c) How are distributions to be made from a s-corp to the shareholder is this daily, weekly, monthly, yearly? I ask because it seems that if i take distributions frequently I would have to file 1040 es forms. Is it better to wait until the end of the year to take out the entire distribution?

d) lastly where or how are cash distributions from the s-corp recorded in schedule k-1 is that line 16 d? and how are payroll taxes that the s-corp pays for social security, medicare, etc reported in form 1120s?

Thanks

Joe

S Corp Income.

a) Line 7. You're a shareholder/officer/employee. :)

b) No. S Corps do not pay income tax directly. An S corp usually does not file Form 1120W. The net taxable income of the S corp will flow to your personal tax return & you'll pay tax at your personal rates. No, you do not want to take wages to get the S corp income to $0 if you don't have to.

c) Distributions have nothing to do with taxable income. They are net cash outflow, but do not affect taxable income. They can be made whenever you like, but be careful they aren't too frequent or it may look like disguised wages.

d)Yes 16(d). Payroll taxes go on line 12, taxes & licenses.

I hope this clarifies how your new S Corp will affect your personal return just a bit. Make sure you understand how the S income is going to flow to your personal return.

L:)

Dear Linda-- First and

Dear Linda--

First and foremost let me say thanks for your time and generosity in responding to my inquiries. I hate to press or belabor the issue but I am still a little iffy on the concept of distributions so I'd like to present a hypothetical scenario. For a 1 person s-corp whereby the s-corp makes $100k a year in revenue and the 1 person (employee) pays himself a reasonable salary of $50k per year and the corp has $10k in expenses so $40 k is available for distribution to that 1 person who both owns the company and is the sole employee is it better to take distributions as follows:

end of q1: $10k
end of q2: $10k
end of q3: $10k
end of q4: $10k

which add up to the $40k in corporate profits and thus this person now has to file form 1040 es for the IRS

or is it better for this person to take distribution as follows:

end of q4: $40k

and avoid having to file form 1040es quarterly?

i guess it seems to me that the IRS would penalize a person who reports wages from a company by the tax filing deadline of april 15th that were already taxed as wages and then tell the IRS by the way I've got some more income to report from s-corp distributions, wouldn't the IRS consider that this person should have filled out 1040es throughout the year? Does it then matter the frequency with which the s-corp distributions are made ?

thanks

Joe

Distributions & Estimated Taxes

Ok. I think I see what you're missing.

The distributions are not what is taxable. It's the income from the S-Corp that's taxable, whether you take it out as distributions or not.

Let's add a third example. Let's say that the sole-shareholder took the $50K of salary but no distributions. What is his/her tax income? $90K. $50K of wages plus $40K of profit from the S-Corp.

Under all three scenarios the taxable income to the shareholder is the same.

As to the estimated taxes. Those are only need if you expect your tax due to be $1000. If it's not, then you don't have to make the estimated payments or pay an underpayment penalty.

If you increase your income tax withholding on your salary, your tax payments go up & the tax due decreases. If you're careful with these & plan well, your tax due could be less than $1000 eliminating the need for the estimated taxes.

Does that help?
L:)

S Corp Distribution

Can you explain exactly how one accounts (in Quickbooks, for instance) for the distribution? My husband and I have an LLC filing as S corp. We paid him $30k in wages plus took $3500 cash out of the company. Where do I report the $3500 on my 1120S?

Recording & Reporting S Corp Distributions

I create a "Distributions" equity account in QB. You can use the "Tax-Line Mapping" field to map entries in the account to "Schedule K-Other Items: Property Distributions (including cash)".

The $3500 shows up is on Schedule K line 16. This then flows to your personal K-1 line 16 with Code D, Property Distributions.

L:)

Recording & Reporting S Corp Distributions - QuickBooks

Linda Coleman wrote last year, Mon, 2008-01-21 15:40.
I create a "Distributions" equity account in QB. You can use the "Tax-Line Mapping" field to map entries in the account to "Schedule K-Other Items: Property Distributions (including cash)".

The $3500 shows up is on Schedule K line 16. This then flows to your personal K-1 line 16 with Code D, Property Distributions

---------------
This sounds perfect but when I attempted it in QuickBooks, a message popped up saying the tax category (Schedule K etc.) was not compatible with the account type (Distribution). Is QuickBooks mistaken here or am I missing something?

Distributions imported as total balance, not one year total

Regarding this suggestion you made back on 2008-01-21:

'I create a "Distributions" equity account in QB. You can use the "Tax-Line Mapping" field to map entries in the account to "Schedule K-Other Items: Property Distributions (including cash)".'

When I import from QB into TT, it puts the EOY account balance of this Distributions account into 1120S, Schedule K, line 16D, not the amount of distributions for the year. This includes the previous year (first year of our business). Is this correct? Isn't line 16D supposed to contain just the current year distributions? This total amount carries to the Distributions line on Schedule M-2 and that appears to be expecting a one year amount. What am I doing wrong?

Thanks, Kevin

Hi Linda, Thanks for all

Hi Linda,

Thanks for all your advice on this website! It's very helpful!

I have a follow up question to the previous. I am planning on starting a single-employee company (just me) to sub-contract IT services. It seems like filing as an S-Corp is preferable since I will save on FICA taxes for compensation not counted as wages (15.3% non-wage earnings up to $106800 in '09 and 2.9% for the HI portion of FICA for amounts greater than that, right?).

That's great for the taxation portion, but both a corporation and an LLC can file using the S-corp method. So, is there really a tax benefit of creating a corporation over LLC? Is everything else the same tax-wise?

Again, I really appreciate your help!

LLC taxed as S-Corp

Hi,

Yes, if you make the S election, for federal tax purposes your LLC will be treated exactly the same way as a corporation making the S election.

On the FICA tax, you only save 12.4%. There is no wage limit on the Medicare tax. This is the same for the SE tax.

L:)

Sole Proprietor going to an LLC

Hi Linda,

Thank you for all you do. My husband and I have been in business for ourselves as a sole prop for 14 years. Everyone tells us we should become a LLC taxed as a corp or an S Corp. Which one would be better to choose of those 2? If we did lets say 120k in business with 50k in expenses as well as 45k in wages paid to ourselves(30k to him and 15k to myself) thus leaving 25k to be distributed to us as shareholders. Him as a 60% shareholder and me as a 40% shareholder. How would be the best way and what forms would be used to show the distributions? We are assuming that the 25k in distributions would only be taxed at the Fed and State tax on line 17 of 1040 through Schedule E and the wages would have Fed,State,SS, Medicare taxes as a W2 on our 1040 return. Now would we have to hold the distibutions until after we file our corp tax return on March 15,2010 so we would have a shareholder basis or can we make distibutions through the 2009 year? Have heard both scenarios but not sure which is correct. Any advise would be greatly appreciated. Also our home state is Ky if that makes a difference.

Thank You
Teresa

C or S Corp?

Hi Teresa,

The situation you described is only true for an S corporation. If you opt to be taxed as a C Corp, any payments beyond salary, fringe benefits or reimbursements would be considered dividends subject to the 15% tax rate).

The distributions are only reported on the Schedule K-1. As the shareholder, you use that information to calculate your basis but usually do not report this on your individual tax return.

If you make the S-election you can make distributions throughout the year & not wait until 2010.

A key piece of missing information is what the company does. If you do any kind of personal services, like veterinary, software development, etc., then your C corp would be a personal services corporation subject to a flat 35%. In that case you would likely be much better off making the S elections.

Hope this helps.

L:)

Hello Linda, We really

Hello Linda,

We really appreciate you answering our reply. My husband is a plumbing contractor. I worked at a university (secretary)and have since retired 4 1/2 yrs ago and have been working with him. We are wanting to start again putting into SS for me. We have gone the LLC route and will probably file form 2553 to be taxed as an S Corp. We are in the process of trying to come up with a "reasonable salary" for both of us and also a rental agreement for the 2 vehicles, tools, and the garage for the vehicles. We are wanting to save some of the SE tax and roll that savings into a Simple retirement plan for me and change from a SEP to a Simple for him. We are unsure as to how the "distibutions or dividends" can be legally divided out to us to save on the SS part of payment. We live in a very rural area so info is really hard to come by. I happened across your site and have read all the praises that you have received from the ones that frequent here and was hoping to get all of your insight as to what would be the logical as well as legal way to receive everything that would be allowed according to system that the govt has in place as of now. We have heard all sorts of things that contractors here has been doing and frankly have a hard time believing that someone could get away with some of those things but if its legal we might as well take those deductions as well. Anything that you could do to help us would be greatly appreciated and you can also reply to our personal email if that would make it easier on you. We realize that your time is very important to you so anything we can do to make it easier on you don't hesitate to ask us. Both of us look forward to hearing back from you with anything you feel is neccessary for us to know.

Thank You Very Much
Teresa

Reasonable Salary

Hi Teresa,

For reasonable salary, I would start with a salary survey site like salary.com. You can enter the job title & zip code to get an idea of what salaries are being paid to other in your area for similar work.

Remember that the higher the salary, the more you can contribute to the retirement plans. SS benefits is not really my area, but I'm pretty sure that the higher your salary now, the higher your SS benefits will be later.

If you make the S elections, the company will make distributions to you, not dividends. However, in both cases, the payments must be proportional to your ownership. So if he owns 60% & you own 40% of the company then the distributions must be 60/40 too. For example, a total distribution of $25K must be paid $15K to your husband & $10K to you ( assuming a 60/40 split).

Rental agreements usually don't help much because you will need to recognize the rents paid by the corporation as income personally . Better to have to corporation reimburse you for out of pocket expenses. For example, you can get reimbursed the federal mileage rate (55 cents for 2009) for business miles put on your personal vehicles. You can also get reimbursed for a percentage of your home maintenance costs. The percentage would be based on the square footage of the space used for business purposes compared to the total square footage of your home (& garage if you're using that for storage).

If you want to contact me directly, follow the Need More Help link under "Services".

L:)

I hate to sound ungrateful

I hate to sound ungrateful here as I know that everyone is busy in one way or the other but I am wondering why so many questions are not even attempted to be answered? I've had a question on here for who knows how long and to me it is important and everyone says that Linda is the best when it comes to the knowledge that we all are asking for but I can't get any advice here at all. This is not a gripe but just fact. In my business if someone asks me a question of how to do something correctly I take the time out of my time and answer what they need no matter how long it takes and no matter how busy I am. It's just the right thing to do. Like I said, I'm not complaining here but the question was extremely important to me and my husband but can't get anything here. I'm sorry

New Thread?

Hi Theresa,

I think your question has gotten lost in all the comments on this post.

Why don't you re-post your question in a new forum topic.

Thanks!
L:)

Mine was the question that

Mine was the question that is up 2 post from here

S Corps

As you can see S Corp and small business taxation are complex issues. If you seriously want to own and operate a business and make a profit you should focus on your business not in it. None of these business owners should be doing this type of tax preparation without assistance. This includes those who incorporate without competent legal advice/assistance. No wonder there are so many confused comments on this blog.

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