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Old 18th February 2009, 09:04 PM   #1

Join Date: Jan 2009
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Default Paying Oneself From An S-Corporation

I am the co-owner of an S-corporation in its first months of business. We're doing quite well for starting out in a sluggish economy. Our plan is to use the first few months of profit for business reinvestment and not take a paycheck.

But when we get there...

What is the best way to pay myself and my business partner? We're not taking a 50/50 cut, we're paying ourselves by the hourly rates which we charge our clients. We offer several services at various rates. I oversee delivery of certain services, him others, and occasionally we work on delivering a service together. I suspect hourly, not salary, is the best way to go starting out.

Can I write checks from the business account for our wages?

Is that the best way to go about it for recordkeeping and tax purposes?

Thank you

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Old 19th February 2009, 06:00 PM   #2

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Although there is nothing simple about running your own business & certainly record keeping can be a nightmare ... but by trying to keep things as simple as possible, you'll be less confused in the end. Decide when pay period is going to be & pay yourself out of your business account as you would any employee. I know this sounds too simple, and it's not quite as simple as I've indicated, but it doesn't have to be crazy complicated either.
For record keeping --- get a book keeper, and an accountant at tax time.
Best of Luck.

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Old 21st February 2009, 04:50 PM   #3
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I agree - what ever method you determine should be the best - you are the ones that have to work with it. You should put everything in writing so there is no confusion later.

Pay yourselves out of the business account. There are local accounting firms that will do your total payroll for amounts less than $50 per month (for only two people). As you add employees that amount goes up per employee (not very much). These companies will do it all - saving you both time and headache.

Just some thoughts

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Old 27th February 2009, 05:34 PM   #4
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Keep in mind--and I see this mistake a lot with S corporation tax returns I prepare--you can pay shareholder-employees different amounts (based on hours worked, value contributed, etc). But you must make distributions to S corp shareholders based solely on ownership shares.

For example, if you have two buddies, Josh and Derek, who together own an S corp, you can pay Josh and Derek different wage amounts. But whatever you pay them as shareholders from distributions from the S corp profits, well, those amounts must be based solely on ownership percentages. If the two guys each own 50% of the S corp, then everytime you make a distribution to Josh, you need to make an equal distribution to Derek.

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Old 28th February 2009, 12:40 AM   #5

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Start by taking a look at your budget for health care needs, cell phones, autos, clothes (write off uniform rental - Cintas/others have expanded business uniforms - depends on your business), association memberships/benefits and travel/entertainment.

A hint about health care...talk to your accountant about a HR105...let your company reimburse you for health care expenses.

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Old 24th May 2009, 09:59 AM   #6

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Location: Michigan
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If neither you nor your partner have payroll experience, by all means don't waste any of your time doing it yourself. Writing the check is easy, filling out all of the payroll reports is NOT! If you are using accounting software, like Quickbooks, you can use the payroll function to help automate some of the reporting, but you (or your accountant) will still need to know what you're doing. In my current sub-S corp, I am the only employee and I outsource my payroll with PayChex ... costs me about $45 per month ... they write me a check out of my business account, take out the fed/state/local withholding, take out the social sec/medicare, make the quarterly payments and file the quarterly and year-end report with the IRS/state. What a value! (There are other payroll services besides PayChex, you should shop around.)

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Old 29th May 2009, 08:34 PM   #7
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Another good payroll service is ADP.

Steve Nelson, Publisher, www dot llcsexplained dot com and www dot fasteasyincorporationkits dot com.
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