TurboTaxChrisV: why are you saying you do not have to pay yourself a salary nor pay out distributions. I agree that you do not have to take distributions, but as an active S corporation owner, you MUST pay yourself a reasonable wage or salary based on a number of factors. Take a look at the S corporation acceptance letter. It now states (as it has for several years) that an owner is required to be paid a reasonable salary. The IRS does not define "reasonable compensation". However, tax court cases have given a pretty good idea of what the IRS and the courts look at in determining the owner's salary. I have represented clients before the IRS on "reasonable compensation" payroll audits. (The only issue under the audit was whether or not the S corporation owner received a reasonable wage or salary.) The auditor always looked at the type of work being done and what someone is such a position were paid in the area in which the taxpayer conducts business. While there are many factors they look at, it is clear that a reasonable wage or salary is absolutely required.
