S-corp and salary

[jocular12]

Doing my 1120S for my S-corp of which I am 100% owner.  I didn't pay myself a salary because we just started less than a year ago and haven't even broken even to make a profit yet.  I finished my deductions part and I got an AUDIT RISK ALERT because I did not take a salary.  I get it that if a corp is making money, you need to pay yourself a "reasonable salary" before you take any distributions, but what if I haven't even turned a profit yet?  I'm already in the red and trying to stay afloat... Taking a salary would just put me out of business.

[AmyT · Accepted solution]

While one of the requirements of being a working owner of a corporation (subchapter S or C) is that you take a salary, it is generally understood (even by the IRS) that a new company may not have enough income to pay the owner initially.

Since this is the first 1120-S that you have filed, the fact the you are not yet taking a salary in a company that is not showing a profit does not increase your risk of being audited.  TurboTax automatically generates the "Audit risk alert" any time that no shareholder salary is inputted into a subchapter S corporation return.