s corp taxes

[Flakie]

Hi everyone, i would appreciate your help for clarity on a few things.

i have an S corp, paid myself reasonably but no through pay roll. i just made monthly transfers.

Paid my hsa and sep ira through the business. Now it seems the ira & sep can not be business expenses because i am not a w-2 employee of this business.

Questions

1. Must i pay myself through payroll for an s corp or is it just a better way and is it actually a better mode?

2. the fica taxes the business half of the 15.3% how does that get paid? My half would be paid on my personal taxes right?

3. is it only through payroll that my business can cover the hsa & sep ira costs?

Thank you in advance.

[Rick19744]

You need to get some professional tax advice so you understand the tax implications of being an S corportion:

• Based on your facts, you already have an issue by not paying yourself wages and reporting this on a W-2 along with the appropriate withholding for federal, state (if applicable) and any local taxes.
• Not paying yourself a reasonable salary via the W-2 and just taking distributions is a focus area for the IRS.
• As a more than 2% shareholder you cannot participate in an employer HSA.  You would need to set one up outside of the company.
• Finally, you are only able to contribute to a SEP if you have qualifying compensation.  Since you don't have any W-2 wages, you don't have any qualifying compensation.

[Flakie]

@Rick19744  thank you for your response.

I paid myself as a contractor for the business and got a 1099 from the s corp business for the monthly "payments" which is what i would be paying payroll taxes on.

the profits of the business is what i thought would be distribution / dividends.

[Rick19744]

That is not the way you pay an employee / shareholder.  It must be done via W-2 wages.