When you are an active shareholder with a W2 wage through your S-Corp it becomes personal income and a business expense. Your salary must be reasonable compensation, you can utilize then benefit of being an employee through your corporation or LLC.
Is an employee of an S Corp self employed?
The big benefit of S-corp taxation is that S-corporation shareholders do not have to pay self-employment tax on their share of the business’s profits. The big catch is that before there can be any profits, each owner who also works as an employee must be paid a “reasonable” amount of compensation (e.g., salary).
How does W-2 get deducted from S-Corp income?
As you’ll instantly see from looking at Lines 7 and 8, both types of W-2 compensation get deducted from the S-Corp’s taxable “flow through” income in the same way.
What does it mean to be an employee of a s Corp?
Many freelancers opt to own and operate their business in the form of an S Corp (also called a Subchapter S Corp), and reap the sweet tax savings that comes along with an S Corp. Put simply, when your business is an S Corp (a.k.a. S Corp), you become its employee for tax purposes.
Do you get Form W-2 if you are a shareholder?
Shareholders who participate in management will receive a Form W-2 because their compensation package must include a salary. Box one on Form W-2 should include any health insurance premiums the S corp paid on behalf of a shareholder. W-2 compensation, even for shareholder-employees, is a business deduction.
When to enter W2 wages as officers compensation?
As a TurboTax Business agent, I’d be happy to answer that question for you. Strictly speaking, if you are a significant owner (or the sole owner) of an S-Corporation, and you actively perform services for it, then you would enter your W-2 wages as “Officers Compensation,” rather than “Employees Salary.”
