I have an S-Corp, and we have not made any money in 2017. We only have losses. Are we still required to have salaries for that year?

[LimahTD03]

If an S-Corp has made no money for the first official year open, should the employees receive a salary even though there is no income from the business?? If so what is reasonable? The company has a loss of over $2,000 with no gain. At what point would there be a red flag due to low salary or lack of salary?  

[ToddL · Accepted solution]

The "reasonable salary red flag" starts waving when you have taxable income or you are taking distributions (cash or property) from the S-Corp.

The IRS guidelines for Reasonable Compensation state: The amount of reasonable compensation will never exceed the amount received by the shareholder eithe...  It does not mention profit or loss at all but instead talks about ‘amounts received’ by the shareholder.  Therefore it does not matter whether or not the company is making or losing money; what matters is whether or not the S Corp owner is taking money (or other items of value).

This article provides an example of where reasonable compensation comes into play with an S-Corp reporting a loss: http://rcreports.com/blog/how-an-s-corp-can-lose-money-and-still-be-required-to-pay-reasonable-compe...