I have a single owner/shareholder S-Corp, I do consulting and don't have regular income so I can't pay myself a set salary. How do I do the taxes for my company?

[alux35]

I have a C-Corporation that elected for S-Corp status. I am the sole owner/shareholder. I have a regular full time job that has given me a W-2 that I am filing in my personal taxes. The income to the company has been irregular (odd consulting jobs, etc) therefore I cannot set a regular salary for myself as there may be times I go 1-2 months without any money coming in. The company made a profit and usually any time I had extra money in the business I wrote myself a check to my personal account. How do I declare that money that was paid to myself from the business since it is not a regular wage? Is this what a K-1 is for? Should I just consider all the money the company made minus expenses paid to myself since I am the only owner or only that money which I actually wrote myself checks for?

[RichardG · Accepted solution]

The S Corporation files Form 1120S to report its tax items to the IRS.  The corporation does not pay income taxes, and issues a K-1 to its shareholder(s).  The K-1 information is then used by the shareholder in preparing his or her personal tax return.  Basically, you will personally pay the taxes on the company's profits, whether you distributed all the profit to yourself or not.  Please follow this link for more information.  https://turbotax.intuit.com/tax-tools/tax-tips/Small-Business-Taxes/Do-Chapter-Sub-S-Corps-File-Pers...

To prepare the corporate tax return, please purchase TurboTax Business.  See https://turbotax.intuit.com/small-business-taxes/

After you prepare the K-1, report that information in TurboTax under the Business Items for your personal return.

[alux35]

Thank you for the response! I was thinking that this is what I needed to do but I wanted to make sure. I have already purchased TurboTax Business to file my business taxes and wanted to make sure I was doing it right before I completed them! Thanks again!

[Critter]

The IRS position is that an S-Corporation MUST pay a reasonable compensation to an officer before non-wage distributions may be made even if the paychecks are paid sporadically during the year.  The reason is that they feel that non-wage distributions when no wages are paid is an avoidance of social security taxes.  From the IRS website at <a rel="nofollow" target="_blank" href="http://www.irs.gov/businesses/small/article/0,,id=203100,00.html">http://www.irs.gov/businesses/smal...> :

"Reasonable Compensation

S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.

Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for the service rendered to the corporation.

Several court cases support the authority of the IRS to reclassify other forms of payments to a shareholder-employee as a wage expense and subject to employment taxes."

The page cites Joly vs. Commissioner, 211 F.3d 1269 (6th Cir., 2000) as one judicial finding on the IRS's authority to reclassify distributions to wages subject to employment taxes.  Factors to determine reasonable compensation are given in the ruling.

The AICPA has an interesting article on this topic here: <a rel="nofollow" target="_blank" href="http://www.aicpa.org/publications/taxadviser/2011/august/pages/nitti_aug2011.aspx">http://www.aicpa....>

You also might want to read a lively discussion on the Tax Almanac website here: <a rel="nofollow" target="_blank" href="http://www.taxalmanac.org/index.php/Discussion_Forum_-_Tax_Questions">http://www.taxalmanac.org/inde...> .  The substance of the discussion seems to be that taking a reasonable salary is not optional and, if you took distributions with no salary, the distributions should be changed to salary with appropriate employment tax returns being filed (late, if necessary.)

The fastest way to get audited as an S-Corporation is to not report wages to officers on page 1 of the return.

[rdowns]

I get that but if you receive say on one project, a very large commission or payment for services rendered and the amount is greater than you would normally make in a year, do you have to report the entire amount. Example: you normally make between 50K and 100K, but in one particular case, you make 300K. How should you treat this one time payment?

[Critter]

I highly suggest that you talk to a local professional to get educated on this subject and getting a reasonable payroll set up for your situation. This is a public forum and not the place to get important advice since we cannot be held responsible if we are wrong.