thanks for the reply.
my income has been in the high end of the range the last few years. the reason I formed LLC with S corp tax status was to reduce self employment taxes as much as possible. if I take a salary of 40K, it's quite possible I won't save hardly anything on taxes. that's why I mentioned the 29K/yr. the s corp will not be providing any type of benefits (health insurance or retirement) at the present time. as a sole proprietor, I was putting money in a roth IRA and SEP IRA. I can still keep doing that right? or am I only limited to putting money in the ROTH IRA now? I am glad you brought the retirement issue up. never even thought of that.
the salary thing would be simple if i was a CPA or doctor or roofer. but when you run an online sales business, it's difficult to find any salary information on that. the only thing I can look at is sales jobs where few skills are required. the BLM site for retail sales person at 29K was the closest I could find. I didn't see anything about online sales. the wages in my state are much lower than the nation average. but then again since my sales are all online, does the average wage of a saleperson in my state matter.
the IRS does say on it's website to consider the following when determining compensation:
The three major sources (for your gross receipts) are:
1) Services of shareholder,
2) Services of non-shareholder employees, or
3) Capital and equipment.
if only #1 applies then I should take salary only. if 2 or 3 also apply, then a distribution can also be taken. 1 & 3 are essential to my business. I do use money (capital) significantly (as any sales business would). to sell 40K worth of products a year, I probably have to spend 20K or more on products, supplies, travel, gas, meals, etc).
based on those numbers I would say CAPITAL is SIGNIFICANT in business operations and making profit. some years would be higher...where I may spend 25K or 30K during the year to make $40K in profit. it would just depend on the year. if I was a doctor or lawyer, this would be pretty simple. although maybe it's good in a way. the IRS would have a hard time determining what the salary of someone is who sells stuff online out of their home should be.
thanks
