Getting paid as an S-Corp business owner can be a little tricky. There are a few things you need to know in order to make sure you’re following the right procedures and getting the money you deserve.
In this article, we will discuss the ins and outs of being paid as an S-Corp business owner. We’ll cover everything from setting up payment systems to tracking your income and expenses. Let’s get started!
What is an S-Corp?
An S-Corp is a small business corporation that has elected to be taxed as a pass-through entity. This means that the business’s income is passed through to the shareholders, who then report it on their personal tax returns.
S-Corps are required to have a board of directors and hold annual meetings, but they are not subject to the same strict rules and regulations as other types of corporations. This makes them a popular choice for small businesses.
How is an S-Corp Different from Other Business Structures?
The biggest difference between an S-Corp and other business structures is how the business is taxed. As we mentioned before, S-Corps are pass-through entities, which means that the business’s income is passed through to the shareholders.
Other business structures, such as C-Corps, are taxed as separate entities. This means that the business pays taxes on its own income, and then the shareholders pay taxes on their dividends.
S-Corps also have different rules when it comes to ownership. To qualify as an S-Corp, a business must have no more than 100 shareholders. These shareholders must be either U.S. citizens or resident aliens. They cannot be other corporations or partnerships.
S-Corps also have different rules when it comes to distributions. Because S-Corp income is passed through to the shareholders, distributions are not subject to double taxation. This means that shareholders only pay taxes on their dividends, not on the business’s income.
How Does an S-Corp Get Paid?
The first step in getting paid as an S-Corp is to set up a payment system. You’ll need to decide how you want to be paid, whether it’s by check, direct deposit, or wire transfer. You’ll also need to set up a bank account for your business.
Once you have a payment system in place, you can start invoicing your clients and customers. Be sure to include your business’s Tax ID number on all invoices. This will ensure that the IRS knows how to properly tax your income.
How Do I Track My S-Corp Income and Expenses?
In order to track your S-Corp income and expenses, you’ll need to set up a bookkeeping system. This can be as simple as keeping a spreadsheet of your income and expenses, or as complex as using accounting software like QuickBooks.
Whichever method you choose, be sure to keep track of all the pertinent information: whom you did business with, what you sold them, how much you charge, and how much you paid in expenses. This information will help you stay organized and ensure that your books are in order come tax time.
S-Corp business owners have to follow a few different rules when it comes to getting paid, but it’s nothing that can’t be managed with a little planning and organization. By setting up a payment system, tracking your income and expenses, and keeping good records, you’ll be sure to stay on the right side of the IRS.
How Do You Decide on a “Reasonable Salary”?
One of the most common questions we get from S-Corp owners is how to decide on a “reasonable salary.” This can be a tricky question because there are a few different factors to consider.
The first factor is your industry. Certain industries have standard salaries for certain positions. For example, if you’re in the legal field, you can research the average salary for lawyers in your area.
The second factor is your experience. Generally speaking, the more experience you have, the higher your salary will be.
The third factor is your company’s size and revenue. Smaller companies and businesses that are just starting out may not be able to pay as much as larger businesses or those that have been established for longer.
Ultimately, the decision of how much to pay yourself is up to you. However, it’s important to make sure that your salary is reasonable, both for tax purposes and for the sake of your business.
If you have any questions, be sure to speak with an accountant or tax professional. They can help you determine a salary that makes sense for your business.
There are Three Ways to Pay Yourself as an S-Corp Owner:
As an S-Corp owner, you have three different options when it comes to paying yourself:
The first option is to pay yourself a salary. This is the most common method of payment for S-Corp owners, and it’s also the easiest way to ensure that you’re complying with tax laws.
The second option is to take distributions from your company’s profits. This can be a good option if your company isn’t making much money yet, or if you want to reinvest profits back into the business.
The third option is to do a combination of both salary and distributions. This can be a good way to minimize your taxes while still taking home a reasonable income.
What are the Pros and Cons of Each of These Options?
Paying yourself a salary has a few advantages. First, it’s the simplest way to ensure that you’re complying with tax laws. Second, it can help you build up your retirement savings. And third, it can give you a steady income that you can count on every month.
However, there are also a few disadvantages to paying yourself a salary. First, your salary is subject to payroll taxes (including Social Security and Medicare taxes). Second, if your company isn’t making much money, you may not be able to take home as much money as you’d like.
Taking distributions from your company’s profits has a few different advantages. First, it allows you to take home more money when your company is doing well. And second, it can help you minimize your taxes.
However, there are also a few disadvantages to taking distributions. First, if your company isn’t doing well, you may not be able to take home any money at all. And second, distributions are subject to self-employment taxes (including Social Security and Medicare taxes).
Doing a combination of salary and distributions can help you minimize your taxes while still taking home a reasonable income. However, it’s important to speak with an accountant or tax professional before making this decision, as it can be complex.
You Should Hire a Tax Consultant to Help You Make a Decision
Making the decision of how to pay yourself as an S-Corp owner can be complex. There are a lot of different factors to consider, and it’s important to make sure that you’re compliant with tax laws.
The best way to ensure that you’re making the right decision for your business is to hire a tax consultant. They can help you understand the pros and cons of each option, and they can help you determine which method makes the most sense for your company.
If you have any questions about how to get paid as an S-Corp owner, be sure to speak with a tax professional. They can help you figure out what’s best for your business.
As you can see, there are a few different options when it comes to getting paid as an S-Corp owner. It’s best to remember the tax implications of each option and to make sure that you’re compliant with tax laws.
If you have any questions, be sure to speak with a tax consultant or accountant. They can help you figure out the best way to get paid as an S-Corp owner.
If you want accurate bookkeeping for your business, consider hiring a reputable accounting firm. One of the trusted accounting firms in Florida is Swiftbooks, LLC. Call 786-204-2881 today to help your business keep its financial records straight!