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s-corp and tax

foco1foco1 subscriber Posts: 1
edited January 2009 in Business Planning
hello,
I have a S-Corp and my company is generating a x.x% per month consistently.  My S-Corp consisted of me and my wife only as share members.  If we do not take salary or dividend from our S-Corp and the x.x % goes back into our investment portofolio.
1. Do we have to file form 941(employment) and Annual tax return? 
2.  how long can we claim no salary and dividend from the s-corp?
Foco1
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Comments

  • SlowCookerMateSlowCookerMate subscriber Posts: 1
    With an S-corp, you are taxed personally on the income of the corporation as it is earned regardless of whether or not you take the cash out.  You should be filing an 1120S and receiving a k-1 from the corp.  The income on the k-1 is what is reported on your personal tax return.
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  • qsoundrichqsoundrich subscriber Posts: 0
    Consider switching to an LLC to simplify things.  I don`t know how to go about doing that, but I`ve learned my lesson about S-Corps, and would like to avoid them from now on.
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  • RetiredMember5RetiredMember5 subscriber Posts: 0
    As an attorney, an S Corporation, is similar to a LLC as a pass through entity.  Since you have already created the entity as a S Corporation, I would not immediately switch the corporate structure to a LLC.   My business partner, also an attorney, just released a FREE 60-page interactive step-by-step guide on how to start, operate and grow a business.   It discusses incorporation structure, technical, IT, marketing, sales, funding, etc. issues.   You may want to reference this for specific information as it pertains to your situation.
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  • SlowCookerMateSlowCookerMate subscriber Posts: 1
    You should also research how each type of entity is taxed in your state before deciding/switching to/from either type of entity.  Some states tax both entities the same and some states have some very high taxes on LLC.  Educate yourself before making a decision.
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  • SteveJSteveJ subscriber Posts: 2

    I thought with an S-Corp you were required to pay yourself a "reasonable salary"? 
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  • TaxLadyEATaxLadyEA subscriber Posts: 0
     
     
    I found the best answer was SherylCPA. 
    It is `statutory` law that all employees of an S-Corporation (including the officers) receive wages.... if there is money..... a `reasonable salary`.
     
    As a shareholder. if you are doing anything for the business..  to try and avoid this and take payments in distribution or loans.. means you want to be audited.
     
    Since the IRS is looking to hire over 600 more auditors... your decision.
     
    As to taking a paycheck or not..  The only shareholder that won in a court case that I have read about was the one where the IRS took shareholder to court stating distribution was payroll in disguise.  The court found in favor of the shareholder as he had absolutely no involvement with the company.
     
    Meanwhile, it`s funny as heck to read about the lawyers and accountants that play this game and get caught by the IRS, go to court over and loss every single time...(Okay..  I have a weird sense of humor).
     
    By the way, switching to an LLC gives you the same legal protection from creditors, etc. as a corporation BUT it`s not cost effective to go switching back and forth AND as an LLC you  have the privilege of having to pay `self employment tax` on the net income (plus a few other items too numerous to write about)..
     
     
    What should be your true deciding factor? 
    FIRST, I assume you are keeping good business records..
     
    SECOND...
    >>>  Are you more the type that wants a paycheck and will have those payroll liabilities paid weekly or biweekly or monthly?
    OR
    >>>  Are you able to make those Quarterly Estimated Tax Payments..
     
    Paycheck = Corporation
    Estimated Taxes = LLC (either as partnership or sole proprietor)
     
    Hope the above information helps you.
     
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