Cindy4
Employee Tax Expert

Self employed

Hi @ForrestG !

 

Congratulations on your business venture!  The compensation for S-corporation shareholders typically should be "reasonable" for the services they perform.  It should be comparative to other industry businesses paying employees for the same type of services.  Here is a resource from the IRS regarding S-corporation compensation:

https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-employees-shareholders-a...

 

The taxation of S-corps and partnerships is similar in that they both "pass-through" to the individual level, but there are some marked differences that may or may not be beneficial to you.  Here are some resources that may help you decide:

https://www.thetaxadviser.com/issues/2022/oct/10-good-reasons-why-llcs-should-not-elect-s-corporatio...

https://turbotax.intuit.com/tax-tips/small-business-taxes/do-chapter-sub-s-corps-file-personal-tax-r...

https://turbotax.intuit.com/tax-tips/irs-tax-forms/what-is-form-1065/L5UpOREHb

 

Many people go the S-corporation route so that they can be employees and collect W-2 wages and have the withholding done through payroll so they don't have to calculate estimated tax payments.

 

Hope this helps!

Cindy

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