What is the difference between Distributions vs. Dividends vs. Owners Draw? Setup as an S Corp.
The IRS requires you to take a reasonable salary: What does that mean exactly, and is there a specific ideal ratio for Salary to Distribution (or dividends?)? Is that Salary for the whole company or your Salary?
For example, let's say the company did payroll for $50k each for employees A & B (who are also 50-50% owners) and an additional $50k for employee C. Should the Salary of $150k be used when taking out, let's say, $40k distribution for each owner, or is it 'owner Salary': 'owner distribution'?
Thank you!
There are no specific guidelines for reasonable compensation in the Code or the
Regulations. The various courts that have ruled on this issue have based their
determinations on the facts and circumstances of each case.
Here is an article that lists some of the factors used by the IRS to determine reasonable compensation.
https://www.aicpa.org/resources/article/s-corporation-reasonable-compensation
I hope you find this information helpful!