A professional with an advanced degree who takes a salary of $30,000 a year for the full-time management of an S corporation generating $500,000 in net income would be suspect. But taking a salary of $175,000 a year for a 40-hour week might not be.
Do you have to take salary if you work for a corporation?
If you work for the corporation, you generally must take a salary. An officer who performs more than minor services for a corporation, and who receives remuneration in any form, is considered an employee and is subject to employment taxes. In recent years, the IRS has become more aggressive in auditing S corporations on this point.
Can a C corporation still ask for compensation?
That’s not to say, of course, that the IRS will no longer raise a reasonable compensation issue in the C corporation, realm.
When does a corporation pay an ostensible salary?
The regs continue, “An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a corporation having few shareholders, practically all of whom draw salaries.
Can A S corporation pay a reasonable shareholder salary?
If your S corporation does the same thing to its only shareholder without an accompanying reasonable shareholder wage, then it is considered self-employment income and subject to the gaggle of taxes with that type of income. Moving on… There are several factors to consider when coming up with a reasonable shareholder salary.
When does a corporate officer become a shareholder?
When corporate officers perform a service for the corporation and receive or are entitled to payments, those payments are considered wages. The fact that an officer is also a shareholder does not change this requirement. Such payments to the corporate officer are treated as wages.
Can A S corporation set employee wages to zero?
But the truth is, a variety of situations exist where an S corporation can set a shareholder-employee’s wage to zero. So a first, maybe too obvious situation: If you’re not working in an S corporation—like say you used to work in the business but you’ve now retired—you don’t need to pay yourself wages.
