Being taxed as a S-corporation, active shareholders are to be paid via payroll - W-2 compensation. The IRS has the amount deemed to be what is considered "reasonable compensation" - the amount you would pay someone else to do what you are doing for the business. By processing the payroll, you will have the tax liability from the wages calculated. For a company just starting out there might be limitations to income and you might have the question if should I pay myself a salary as an S-corp owner?
Once a reasonable salary has been paid the shareholder-employee can take distributions and avoid payroll taxes on this amount. A tax reserve on the distributions is suggested and if large enough you might need to make estimated income tax payments.
Normally there are no fees associated with the Federal tax return, state fees and taxes vary by state. The reportable activity passes through to a individual(s) personal tax return.
For deducting expenses related to the company, it should be related to the actual business activities. It is important that the actual records, bank accounts, credit cards, assets, loans be in the business name and operations kept separately from any other person or business. Organizational documents, receipts, agreements and all other records for the company kept separate and organized.
For taking the home office deduction you can take a corresponding percentage of the expenses.
For the pros and cons of operating as a S-corporation as opposed to being self-employed. After the payment of reasonable compensation, you would not have to pay the additional 15.3% in payroll taxes. With respect to your state there could be additional savings there depending how businesses are taxed. There are legal and liability protections, but you would need to ask a lawyer.
