Hello all, I have an S Corp set up that I opened up this year and am currently paying taxes on.
I have my gross revenue, from which I declare a percentage of this revenue as profits. From these profits, I declare a percentage as income (wages) to myself as an employee of the company on payroll. I am the sole employee of the company.
I have been dealing with one accountant (let's call him Accountant A) up until now, but I met with another accountant (Accountant B) recently and he suggested there is no real advantage in paying myself an income on payroll as wages.
Accountant B said I'm actually paying more in taxes because I am being charged a higher Social Security tax by putting myself on payroll (most employees who pay ss tax have a percentage covered by their employer, but because my "employer" is the S-corp I own, I am paying a higher percentage in taxes). He suggested I stop paying myself through Payroll wages and just declare the money as company profits or distributions.
I asked my Accountant A about this, and he told me that this is a loophole the IRS is cracking down on for people who have S-Corps and are trying to get away with paying SS tax. However, Accountant B who suggested I get off the payroll wages said that the IRS has been saying this for years and it isn't significant. He said I would be fine simply declaring any profits as company profits and not distributing a piece of that to myself as quarterly payroll as an employee of the company. However, this didn't make sense to me because if I go down this route, then from the perspective of the IRS how am I getting paid? How am I able to survive if I am not paying myself a portion of the corporation's profits as wages? How is money going into my pocket? Is there a different way of cutting myself a check when I pay my income taxes rather than paying quarterly wages? If so, what's the difference between doing this and paying quarterly wages?
Another thing Accountant B told me is that since this is my first year in business, the IRS is lax in terms of what I file as profit. In other words, he said since it is my first year in business, not making much profit or "breaking even" will not raise many red flags.
I feel like I am getting conflicting information from these two accountants. Accountant A is telling me I need to put myself on a quarterly payroll or I risk being audited or flagged. However, Accountant B is telling me it isn't necessary to do this, I won't be audited, and I will save myself money by not paying extra Social Security tax.
What I am seeking from a relationship with my accountant as I go forth in my business is, of course, someone who will help me save as much money as possible, BUT I want someone who will be earnest in their risk assessment of what I am declaring and keep me out of trouble and off the radar of the IRS. What constitutes "reasonable" when cutting yourself a salary from an S-Corps profits? Is it necessary to distribute a percentage of these earnings as wages to yourself at all? Is Accountant A wasting my money unnecessarily, or is Accountant B being too lax in his assessment of the potential troubles I can run into if I do not pay myself wages?
Please let me know if you need any additional information from me. I appreciate any responses! Happy New Year!
I have my gross revenue, from which I declare a percentage of this revenue as profits. From these profits, I declare a percentage as income (wages) to myself as an employee of the company on payroll. I am the sole employee of the company.
I have been dealing with one accountant (let's call him Accountant A) up until now, but I met with another accountant (Accountant B) recently and he suggested there is no real advantage in paying myself an income on payroll as wages.
Accountant B said I'm actually paying more in taxes because I am being charged a higher Social Security tax by putting myself on payroll (most employees who pay ss tax have a percentage covered by their employer, but because my "employer" is the S-corp I own, I am paying a higher percentage in taxes). He suggested I stop paying myself through Payroll wages and just declare the money as company profits or distributions.
I asked my Accountant A about this, and he told me that this is a loophole the IRS is cracking down on for people who have S-Corps and are trying to get away with paying SS tax. However, Accountant B who suggested I get off the payroll wages said that the IRS has been saying this for years and it isn't significant. He said I would be fine simply declaring any profits as company profits and not distributing a piece of that to myself as quarterly payroll as an employee of the company. However, this didn't make sense to me because if I go down this route, then from the perspective of the IRS how am I getting paid? How am I able to survive if I am not paying myself a portion of the corporation's profits as wages? How is money going into my pocket? Is there a different way of cutting myself a check when I pay my income taxes rather than paying quarterly wages? If so, what's the difference between doing this and paying quarterly wages?
Another thing Accountant B told me is that since this is my first year in business, the IRS is lax in terms of what I file as profit. In other words, he said since it is my first year in business, not making much profit or "breaking even" will not raise many red flags.
I feel like I am getting conflicting information from these two accountants. Accountant A is telling me I need to put myself on a quarterly payroll or I risk being audited or flagged. However, Accountant B is telling me it isn't necessary to do this, I won't be audited, and I will save myself money by not paying extra Social Security tax.
What I am seeking from a relationship with my accountant as I go forth in my business is, of course, someone who will help me save as much money as possible, BUT I want someone who will be earnest in their risk assessment of what I am declaring and keep me out of trouble and off the radar of the IRS. What constitutes "reasonable" when cutting yourself a salary from an S-Corps profits? Is it necessary to distribute a percentage of these earnings as wages to yourself at all? Is Accountant A wasting my money unnecessarily, or is Accountant B being too lax in his assessment of the potential troubles I can run into if I do not pay myself wages?
Please let me know if you need any additional information from me. I appreciate any responses! Happy New Year!
