I'll add a few additional comments:
- As in most things in life, there needs to be a balance in the wage vs dividend question.
- If this is your only source of income, and you are devoting your time to the business, the IRS will take the position that you should be paid a wage; I think that is a reasonable position as most people want to be paid for their time at a business.
- The IRS has many algorithms in their software and no wage yet paying out dividends could potentially trigger a red flag.
- Should the IRS reclassify some of the dividend as wage, you will then run into late filing of payroll tax penalties.
- You also need to keep in mind the long-term impact of not paying yourself a wage, yet working. There is no mention of your age or goals of this business. But not paying yourself a wage could impact your social security income at retirement.
- Finally, whatever your final determination is, and regardless of the year, I recommend you add some commentary to your corporate minutes discussing the methodology behind the decision.
*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.
