Paying yourself as a sole proprietor or an LLC is fairly straightforward, but once you become an S Corp, matters can get more complicated. In today's post at Perfect Balance Bookkeeping and Tax Services, our online bookkeeping services talk a little bit about S Corps and what paying yourself as an S Corp can look like. Read on to learn more and hire a top-rated virtual bookkeeper today!
Paying Yourself As An S Corp
Paying Yourself As An S Corp
How S Corps Differ From Sole Proprietorships and LLCs
S Corporations are a popular business structure for small businesses, as they offer many of the same benefits as LLCs but with a few key distinctions. For one, S Corps are taxed separately from their owners, meaning that owners can avoid double taxation on their business income. Additionally, S Corps have the ability to offer its owners health insurance and other benefits, making them an attractive option for business owners looking to provide these perks to themselves and their families.
Reasonable Salary
The IRS requires that S Corps pay their owners "reasonable salary or wages." But what exactly constitutes a "reasonable" salary? Unfortunately, there is no definitive answer, as the IRS does not provide specific guidelines. However, the IRS officially states that a reasonable salary or wage is, "An amount that would ordinarily be paid for like services by like organizations in like circumstances." In other words, you should pay yourself what someone in a similar position at a similar company would make.
Ways to Pay Yourself as an S Corp
Under an S Corp structure, your role directly affects your pay. You can collect earnings in three ways:
An employee salary
Shareholder distributions
A hybrid of the two
Each way of compensating yourself comes with its own distinct advantages. Be sure to choose the method that works best for you and your business by working with an online bookkeeping service.
Work With Perfect Balance Bookkeeping and Tax Services Today
Paying yourself as an S Corp can be a bit more complicated than paying yourself as a sole proprietor or LLC, but we hope this article has helped! To learn more about S Corps and other business structures, or to find a top-rated virtual bookkeeper, hire a top-rated virtual bookkeeper today!