NY S Corp payroll


W

Wickerlove

I understand that legally, S Corp owners are employees and
must be on the payroll w/ all appropriate taxes taken out.
But someone told me that if the company is not making enough
money, there doesn't have to be a payroll (presuming the
owners agree to work for free). That just doesn't seem
right to me. Anyone?
 
Ad

Advertisements

G

Gene E. Utterback, EA

Wickerlove said:
I understand that legally, S Corp owners are employees and
must be on the payroll w/ all appropriate taxes taken out.
But someone told me that if the company is not making enough
money, there doesn't have to be a payroll (presuming the
owners agree to work for free). That just doesn't seem
right to me. Anyone?
What part doesn't seem right? If the company does not have
sufficient cash to pay the owner a salary then why should
the company be forced to pay the owner a salary? Of course,
if there is sufficient cash to pay distributions, then
salary should come first. I can't remember the number of
businesses I've worked with, including my own practice,
where the owners, me included, have had to forego wages in
the first year because there was insufficient cash.

Gene E. Utterback, EA
 
H

Harlan Lunsford

Wickerlove said:
I understand that legally, S Corp owners are employees and
must be on the payroll w/ all appropriate taxes taken out.
But someone told me that if the company is not making enough
money, there doesn't have to be a payroll (presuming the
owners agree to work for free). That just doesn't seem
right to me. Anyone?
First, one correction, in that S corp owners who actually
work in and for the corporation are employees. So, it's
possible for one owner to be "silent" and therefore no
requirement that if the corporation is profitable he be
paid.

And that answers second question, too. No profits before
owners salaries? then no salaries required.

Cheer$$$,
Harlan Lunsford, EA n LA
 
F

Frederick Jorden

What part doesn't seem right? If the company does not have
sufficient cash to pay the owner a salary then why should
the company be forced to pay the owner a salary? Of course,
if there is sufficient cash to pay distributions, then
salary should come first. I can't remember the number of
businesses I've worked with, including my own practice,
where the owners, me included, have had to forego wages in
the first year because there was insufficient cash.
Aint it wonderful to be in business for yourself!
 
Ad

Advertisements

W

Wickerlove

I can't remember the number of
businesses I've worked with, including my own practice,
where the owners, me included, have had to forego wages in
the first year because there was insufficient cash.
That's a relief then. Would it raise any red flags with the
IRS if in the second year, salaries are very low? We
incorporated late in the year 2003, and paid no salaries. I
expect 2004 will show profit, but very little (likely under
3,000).

The correct thing to do would be to take (low) salary, pay
the appropriate taxes, and, if there is anything remaining,
put in on K-1?

I appreciate everyone's input with this - we do have an
accountant who helps out, but I don't think he has the
background for this stuff, and in any case, I would like to
understand taxes and tax law as much as I can.

Thank you.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top