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Tax Talk

S Corporations – Paying Reasonable Wages to Shareholders

Joe Hockaday - Friday, February 22, 2013

One of the most common questions we get with S Corporations is: What do I need to pay myself in payroll? Or can I take distributions only?  The answer is you must pay yourself a reasonable wage through payroll according to your industry and then you can take distributions.  If you don’t pay yourself a reasonable wage you could be subjecting yourself to be audited.  If you get audited the IRS can then claim all payments made to you as wages, which then result in you paying back payroll taxes, penalties and interest to the amount of years the IRS decides to audit you for.

Don’t let this happen to you. We find most often that S Corporation shareholders only take distributions.  Our firm can help you estimate what your reasonable wage will be along with tax planning for the future of your company.

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