can my scorp pay my wife as an officer?

[lung ho]

I have an LLC tax as scorp. i am the only owner of that scorp. can i pay my wife as an officer instead of paying myself?

Thank you

[Critter-3]

Yes she can and should  be a waged employee if she works for the business.  YOU also must take a wage if you also work the business in addition to her wages it cannot be instead of your wages. 

[Opus 17]

"instead of"...No.

Any person who performs services/work for the company must receive a fair market wage before any profits can be distributed.  Likewise, anyone who does not perform work for the company should not receive a wage.

If you and your wife perform work for the company, you both get wages on W-2s.  If you perform work and your wife does not, you get a W-2 salary and your wife does not.  

[lung ho]

I owned the a nail shop, but I don’t work there, my wife works and manages everything. I just do the number. do I have to pay myself as an officer ? or can I pay my wife as an officer and not paying me? 

thanks.

[Opus 17]

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@lung ho wrote:

I owned the a nail shop, but I don’t work there, my wife works and manages everything. I just do the number. do I have to pay myself as an officer ? or can I pay my wife as an officer and not paying me? 

thanks.

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Here is an article on compensation for officer-employees (officers who also provide services, this is your wife.)

https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical...

Your wife must take a fair salary for the work she performs (doing nails, managing, etc.)  What does "do the number" mean?  Do you do the accounting for the business?  That is also work.  If you didn't do it, you or your wife would probably have to hire a bookkeeper or accountant, right?  What would you have to pay that person to keep your books?  That would be your salary for keeping the books.  Salaries are reported on a W-2 and are subject to withholding of federal income tax, state income tax, and social security and medicare tax.  It's ok to pay the salary weekly, or monthly, or quarterly, or even yearly, as long as it represents a fair market value for the work being performed.  

Can an officer who does no work be paid a salary?  I don't think so.  Officers who own shares in the company but perform no work are compensated by dividends or profit sharing, but the profit-sharing only happens after any employee who perform work get paid their wages or salary.  

It sounds like your wife should be paid a relatively large salary for doing nails and managing the salon.  You might be paid a modest salary as bookkeeper for the business, if I understood you correctly.  If the business has profits after paying salaries, the profits can be distributed to the shareholders according to the number of shares they own.

@Anonymous_ 

@AmeliesUncle 

Do you have further thoughts for this taxpayer?

[anchorvalleygroupllc]

We have a similar situation.  My wife is the sole owner of the LLC S Corp, but she does not work in the business.  I am an active consultant in the business with a salary that is comparable to other consultants in my industry.  She just takes distributions now and then as the non-participating owner.

[Mike9241]

if she performs no services to the S-corp she's not entitled to a salary. 

here's from the IRS

Courts have consistently held S corporation officers/shareholders who provide more than minor services to their corporation and receive, or are entitled to receive, compensation are subject to federal employment taxes. If an officer does not perform any services or only performs minor services and is not entitled to compensation, the officer would not be considered an employee.

if you take your compensation as a salary that's fine. if you take it as non-employee compensation and get a 1099-NEC that could be a problem especially if this is the only company you work for. 

[anchorvalleygroupllc]

Thank you for the clarification @Mike9241.  I take a normal salary as a consultant, not 1099.  She does not perform any work for the company in any capacity.  She has only taken distributions.