It’s not uncommon for startup entrepreneurs to refrain from taking a salary while they’re getting their companies off the ground. However, once your business becomes profitable, both the IRS and your state tax board expect you to pay yourself a salary if you’re working in the company.CPA Gregg R. Wind of Los Angeles-based Wind Bremer Hockenberg, says that tax authorities have recently become more aggressive about requiring S-corporation shareholders to take reasonable salaries. “Published reports have stated that a fair number of small S-corporations, primarily those with gross receipts of less than $100,000, are not reporting any wages paid to employees,” Wind says.
Many of them are believed to be taking funds out of the company in the form of “corporate distributions” instead of salaries. In August, 2003, the IRS advised tax professionals and small business owners about the need to understand the law regarding corporate officers who perform services.
Photo by PartsnPieces.
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