How do we disburse funds for salaries and taxes for S Corporation?

Question

We need to know how to disburse funds at the end of the year for our S Corp and how to decide what kind of salary to set for ourselves.

Answer 1

Ask your financial accountant, not a bunch of teenagers on YA.

Answer 2

I assume you mean disbursals for yourself as the owner of the S Corporation.

You pay yourself just as a regular employee. If you need comparables, you can check out salary.com. You should also make a distribution out of your AAA account to help cover the taxes on the total income from the S Corp. Just write yourself a check for whatever you want, and debit your retained earnings account for that distribution.

Make sure you keep documentation on the distribution in case of an audit.

Answer 3

As a teenager on Yahoo, I would recommend distributing the year end salary in sufficient amount that there is no taxable income left in the corporation if you are in a state that taxes S corporations. If not, consider minimizing the salary and distributing enough to pay taxes, but make sure you distribute pro rata as S corporations cannot have dividend preferences. By minimizing salary, you reduce employment taxes for the corporation.

Answer 4

I am a Tax Auditor for the State of California and a comment above hit it on the head. Make sure you determine a salary that is substantial/reasonable for your officers depending on their duties and services provided to the corporation. Even though its and S-corp its still a corporation and the owners cannot take draws our as freely as a partnership or sole prop.

Answer 5

Per the IRS, you must pay yourself a "reasonable" salary. What "reasonable" is a matter of circumstance. As a general rule of thumb, the salary you draw should be comparable to what it would cost you to hire someone from the outside to do the work.

The salaries paid to S-Corp officers/owners is a major focus of the IRS.

Answer 6

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