Some additional comments:
- Apparently the CPA you either talked to or visited did not do a good job of explaining S corporations and how they work. You shouldn't be having to ask this question if you had a good one on one with a tax professional who provided thoughtful advice.
- The key focus of the IRS is that they look for "reasonable wages" being paid. There is no definition for that term. It is just based on facts and circumstances.
- I would agree that if you are just making ends meet or generating little income in the beginning, you may not need to pay yourself a wage.
- The key to bullet 3 is that you also don't make any distributions, other than sufficient distributions to pay the tax on the S corp earnings that are passing through to you (federal and state).
- As a shareholder in an S corporation, you will receive a Schedule K-1 each year that reflects your share of the S corporation earnings and separately stated items. Your K-1 will then be entered into TT. The software has a good format to walk you through the input.
- Also make sure that someone maintains your tax basis in your S corporation. This is key.
- I recommend you either have another meeting with the CPA to go into more detail so that you understand the mechanics, or if you are questioning this individual, make a switch until you feel you have a good relationship with this individual.
*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.
