S-Corp and paying myself

[bauer7498]

I am the sole person running and participating in my S-Corp.  I've read in other posts that S-Corp MUST pay me a salary if I actively participate, and more specifically advise I should pay myself a "reasonable" market-based salary.  My very small S-Corp made less than $12,000 last year... after expenses and deductions I expect the business will maybe have +/-$7,000 in business income.  These amounts of money do not even come close to supporting or paying myself a "reasonable" market-based salary.   In this case, is it more appropriate to simply report any Ordinary Business Income from my K-1 [Box 1] in my 1040 personal taxes?

[M-MTax]

You need to use your best judgement, but, generally, if your business (S corporation) makes no profit, you can pay yourself no salary (and that's reasonable).

[Mike9241]

See this IRS fact sheet.  If you think that it will continue to have nominal profits, you may want to consider abandoning the S-corp and operating as a sole proprietorship. Sooner or later, the IRS will audit if you continue to fail to take a salary. The penalties and interest that ensue would be significant.  You are an employee of the S-Corp, and generally, employees do not work for nothing.  

https://www.irs.gov/pub/irs-news/fs-08-25.pdf 

[M-MTax]

This is key:

The amount of the compensation will never exceed the amount received by the shareholder either directly or indirectly. However, if cash or property or the right to receive cash and property did go the shareholder, a salary amount must be determined and the level of salary must be reasonable and appropriate.

So you need to take a salary but it would be dependent upon profits. The IRS can't and won't do anything if you have nominal profits and can only afford to pay yourself a small salary as a result.