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Just created an S-Corp this year - two owners, no other employees. We make profit, but just barely. I want to keep a portion of these profits in the company bank account, but I also want to distribute a portion to us as payments.

We don't make enough to really consider it a salary, but I've heard using a draw without a salary is a bad idea. I have no idea what I need to do to actually get some money in our pockets.

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If you're really interested in the long-term success of your business, and you can get by in your personal finances without taking anything from the business for the time being, then don't.

There is no "legal requirement" to pay yourself a prevailing wage if doing so would put the company out of business. it is common for a company's principals not to draw wages from the business until it is viable enough to sustain payroll. I was in that situation when I first began my business, so the notion that somehow I'm violating a law by being fiscally responsible for my own company is nonsense.

Be wise with your new business. You didn't state why you feel the need to take some kind of payment out, but this can be a crucial mistake if it imperils your business or if that money could be better spent on marketing or some other areas which improve revenues.

You can always create a salary deferral agreement between yourself and your own company which basically states that the company owes you wages but you are, for the time being, willing to defer accepting them until such time that the company has sufficient revenues to pay you. That's one solution, but the simplest answer is, if you don't need the money you're thinking of paying yourself, don't do it. Let that money work for you in the business so that it pays off better in the long run.

Good luck!

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We don't make enough to really consider it a salary, but I've heard using a draw without a salary is a bad idea.

As any other illegal action, not paying yourself a reasonable salary when being a corporate officer is indeed a bad idea.

I have no idea what I need to do to actually get some money in our pockets.

The answer is simple. You need to earn more money.

Since it is S-Corp, it doesn't matter if you keep the profits on the corporate account or distribute - the profits will be taxed to you. You are also, as I said above, required by law to pay yourself a reasonable salary. Reasonable meaning corresponding to market rates. Paying a CPA or a Software Engineer a minimum wage will not be reasonable. That is, of course, if you're profitable, you're not required to pay yourself more money than the corporation actually has.


Just to be clear, my answer refers to the question asked, and the confusing answer above that made a claim that has no substantiation in the law. I do not intend to write a thesis about pros and cons of using S-Corp every time a question about reasonable salary is asked.

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    I'm not familiar with S corporations. How can the law require you to pay yourself a "reasonable" salary? New start-ups often make little or no profit for years. Where would the money come from? – Jay Oct 22 '15 at 4:54
  • @Jay as I said - you're only required to do that to the extent of the corp income, but yes - the law does require that. – littleadv Oct 22 '15 at 5:22
  • @Brick no, there's no difference in tax. You can keep your salary on the company bank account as well, it really doesn't matter. – littleadv Oct 22 '15 at 5:23
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    @Brick there are several people on this site, who routinely, like you, promote tax evasion. This is not because they're right, but because they believe, as you do, that mere establishing S-Corp should miraculously make you pay less taxes. Obviously, this is incorrect, and obviously people are frustrated by that and express their frustration by routinely downvoting my explanations on the matter. Unfortunately for them, since these are not Congress votes, it doesn't actually change the IRC. And the IRC has no "60/40" rule in it, despite your desperate attempts to claim otherwise. – littleadv Oct 22 '15 at 5:27
  • @Brick because it is irrelevant in this case. There are books written about that, but in the case of the OP its just irrelevant, and will only confuse him. Trying to achieve "tax advantage" in this situation will lead to those penalties because it cannot be done. – littleadv Oct 22 '15 at 16:53
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S-Corp income is passed through to owners and is taxed on their 1040 as ordinary income. If you take a wage (pay FICA) and then take additional distributions these are not subject to FICA.

A lot of business owners will buy up supplies/ necessary expenses right before the end of the tax year to lower their tax liability.

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