S corp help

[chadcrc]

I have started my own s-corp and have my first customer. I am only making about 100/wk right now and I am the only employee.
I am confused on the distributions vs salary. I want the money I make but I don't know the best way to handle it. Should I pay myself the entire amount as salary, or do distributions once a month...Can someone clear this up for me as to how I can keep the money I make with the least amount of taxes?

Also, I think I read about you need to make 1500 per quarter to be responsible for unemployment taxes. Am I responsible for this tax as well?

[rhys]

Hi chadcrc,

I am about to switch to an S-corp and asked a similar question a few threads down. Unfortunately, I've gotten no responses yet.

However, as far as salary and taxes, you will have to pay social security and medicare on your salary but not on the money the business makes on top of your salary. So, don't make your salary the entire income but it has to be "reasonable".

Good luck with the new business!

[chadcrc]

Originally Posted by rhys

Hi chadcrc,

I am about to switch to an S-corp and asked a similar question a few threads down. Unfortunately, I've gotten no responses yet.

However, as far as salary and taxes, you will have to pay social security and medicare on your salary but not on the money the business makes on top of your salary. So, don't make your salary the entire income but it has to be "reasonable".

Good luck with the new business!

Thanks, am I responsible for FUTA as well?

[rhys]

Hmm, not sure about that.

[OldJack]

Hi Chadcrc,
distributions vs salary?

By law an officer/shareholder actively providing services/working in an S-corp is an employee. You MUST take a reasonable salary (W2) as an employee and pay all withholding taxes. The IRS is very active in checking those S-corps that do not show any officer salary on the 1120s tax return and issued a warning to tax pros on the IRS web site.

All S-corp net income is taxable (1120s-k1 form to 1040 sch-E,pg2) to the shareholders regardless of whether it is distributed or not. Therefore any "cash distributions" are not taxable unless you exceed your stock basis (the S-corp's income plus your investment). As distributions are not taxable then they are also not subject to Federal & State Unemployment taxes.

If you take a salary (W2) then that is a deduction/expense reducing the S-corp taxable income (1040 Sch-E, pg2) but of course it is taxable as wages on your 1040. The gross salary is also subject to Federal and State Unemployment Taxes.

Hope this helps.. no big deal.