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Paying owners

My daughter and I have a S Corporation.  In 2020 we spent about $15,000 getting the company set up.  We made our 1st and only sale of $500 in October.  Do we have to pay ourselves, from where (since we have a $0 balance), and how much? We would be late on our W2s

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2 Replies
LenaH
Employee Tax Expert

Paying owners

Although it is generally recommended to pay yourself a "reasonable salary" from your S-corporation, you can choose to have no salary or less than reasonable compensation if you do not want or cannot pay yourself a salary. 

 

In future years, when you and your daughter do pay yourselves salaries, you can read the IRS Fact Sheet Wage Compensation for S Corporation Officers for guidelines on establishing reasonable salaries. 

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Paying owners

The key with S corporations, in which the IRS focuses on, is a balance between reasonable salary and distributions. 

A reasonable salary is always based on facts and circumstances.  Your facts, given this is the initial year and minimal income, could clearly justify no wages being paid.

Once you begin earning income (net income), make sure you are being paid a reasonable salary.

I might recommend consulting with a tax professional post April 15th.  Here you can gain some understanding of the S corp rules, what a reasonable salary might be based on your facts, etc.  Always good to start out on the right path.

*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
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