I disagree with the statement about the IRS not caring if you pay out salaries. I can assure you they care. We have a lot of personal service clients (mostly doctors). It’s actually a high audit area for our client base. BUT that being said, we tend to the conservative side. Most of them pull at minimum $230k salary for full retirement benefits (They can then put $46k into profit sharing/401k, tax-free). I have heard some pretty lenient formulas, like $30k salary would suffice even for some of our clients. But I would never recommend a profitable S Corp. take no salary unless they want IRS knocking on their door.
tax at the federal level, on S corps! Some states do tax, but it is pennies. California is a whopping 1.5%.
I’m not sure that is entirely accurate… An S-corp does not pay taxes like a C-Corp does. S-corp earnings (whether distributed to shareholders or not) are included on the shareholders taxes. There is an informational filing given to shareholders (K1) but that is it.
Shareholder meetings take me all of 30 seconds. I have a template, and once a year I change the date, print it out and sign it.
Even if you take NO distributions, you WILL still pay the tax on the company profits
It is WELL worth it to form an S-corp if the business is profitable. Otherwise, you are just giving away 14.5% of your income that you don’t have to.
Jacob, Justin- Lawyers can usually get around the corp/LLC to the owner because of co-mingled assets. The more formal you keep the business and your personal stuff, the better protected you’ll be. Don’t go buying stuff for yourself personally with the business money, don’t loan money to the business without paperwork, etc.
Boo – You’ll have to fill out a Schedule C for 2008. This is just a schedule on your personal tax return just like itemizing your deductions.