Hello, new guy here.

I created an S-Corp earlier this year. It's a company centered in high-end web and graphic design. I've earned about 10,000 so far but haven't paid myself a cent because I was unsure about how to go about it.

I figured just waltzing up to the ATM and taking out money wouldn't be kosher, so I'm guessing I have to officially hire myself. If so, is there any neccesary paperwork involved? And when it comes to actually paying myself, what procedure should I follow to make sure tax-time goes as smoothly as possible?

Thanks for any advice.

(disclaimer: i do not know how the laws work and my advice is just that advice which should be checked with an Accountant)

this is definatly one of those times where you should visit the accountant, As i am sure there would be quite a number of rules that need to be followed to ensure that if it comes down to being audited at anytime you have done everything by the book. This if you hire yourself into the business.

If you were to pay yourself as a contractor though then it may be easier i think. You create an invoice in your personal name just in excel using there template, then the S-Corp pays that invoice in case(take the money from the atm) or cheque or what ever you like. Then you keep records of what pay you have received and you should be able to file your tax return as normal, except you have been receiving the income as a contractor rather then an employee. you will need to pay your tax that is owing though so you should check what this might work out to based on what you think you will earn.

Either way will probably work but check with the account as they will probably be able to tell you the way that will be of most benifit to you.

__________________
Joel Brown - Orion Networks
Techie-Central - Forums | SEOPTIMISA
Books | PHP

An Officer or Shareholder preforming services for a corp is an employee and not a contractor. I suggest you review the IRS article at this link:

http://www.irs.gov/businesses/small/...112602,00.html

One paragraph quoted here:

S Corporation Officers Performing Services Are Employees; Pay Is Wage

Headliner Volume 53
August 28, 2003
The Internal Revenue Service wants tax professionals and small business owners to understand the law regarding corporate officers who perform services. By law, officers of corporations are employees for employment tax purposes and their compensation is wages. The IRS has identified that some S corporations, in an effort to avoid employment taxes, are improperly treating payments for services to officers as ?corporate distributions? instead of salaries. This attempt to characterize officers as other than employees does not work. This article discusses the tax law and recent court cases related to this issue.

Thanks for all the helpful information, so far.

So I assume I would have to file a w-4 form for myself. Pay myself an appropriate wage and withhold the right amount of taxes(where can I find out how much to withhold, based on my w-4?) Then, any profits left over in the company at the end of the year is distributed as dividends?

If so, how do I pay taxes on these distributions?

Form W-4 is not filed with anyone and is just a record for the corp payroll files. Yes, you must pay yourself an appropriate wage and withhold taxes. IRS Publication 15 has the charts for you to determine the withholding. Profits left over are taxable to the shareholders regardless of distributing the money. The corp issues you a W2 for your salary and a 1120s-k1 for the profits left over. The profits left over (1120s-k1) go on your 1040 Sch-E, pg2, and are not subject to self-employment taxes. You should file form 1040ES quarterly vouchers to pay in estimated taxes based upon the profits left over that you will be taxed on at year end. As the left over profits are going to be taxed, you might as well take them out anytime you need them as tax-free cash distributions or you can leave them and take them out tax-free years from now.

OK let me get this straight: You said profits left-over are taxable to shareholders, but at the end you said I can take them out as needed as tax-free cash distributions???

First thing you need to do is get with the IRS as an Employer. This can be done almost instantly at http://www.irs.ustreas.gov/businesses/index.html. You can download in .ptf format about anything you want. Or, you can ask them to mail you Pub 15 and related info.

Not only will you be subject to withholing taxes, but social security and medicare. And, in most cases, unemployment taxes, but state and federal. Also, if you are in a state with income taxes, you will be subject to them, as well.

This can be a bother and a pain in the butt for someone who would rather spend time doing what they do to earn in the first place. While you'll still have to register with both federal and state, you might want to find a local small business bookkeeper who will handle all the detail for you. It's not hard, and with one employee, not a lot of time, but it can be "hired out".

Most bookkeepers will guarantee what they do an pay any penalties that they may cause. Biggest problem in it all is meeting filing and depositing deadlines, sometimes overlooked by someone "on a mission."

Left over profit/(loss) is taxable/(deductible) to the shareholders in the year earned regardless of when the cash is distributed or taken out. The corp files its tax return form 1120s and attaches a form 1120s-k1 for each shareholder showing the profit or loss and any other tax attributes being passed to each shareholder. Form 1120s-k1 is also given to each shareholder (like a w2) and shows the shareholder what is taxable and instructions for where to put the numbers on their 1040.

If the shareholder does not take the profits out, because the corp needs the money to operate, the profit is kept track of in a so called "AAA" account (in the equity section of the balance sheet because its owed to the shareholder) and can then be taken out as tax-free "cash distributions" anytime so desired because the shareholder has already paid taxes (or will pay taxes) on the money. no big deal.

Great info here! I'm off to a good start.

Thanks!

I believe that if you own the company you cannot write your salary off as a salary expense, to record this you would use Owner Drawing, which is not a type of expense. Again I am pretty sure this is the way it is, this is what I've heard in my accounting class. Good luck.