Many business owners choose to setup their operations as an S Corporation for possible advantages such as limited liability, corporate structure, ability to sell all or portions of the business, or to aid in minimizing self-employment tax. However, many of these S Corporation owners are not aware that if they form an S Corporation they must pay themselves wages. Any owner performing services for an S Corporation must receive a reasonable salary. If a reasonable salary is not paid to the shareholder providing services, the IRS or EDD can determine the wages that should have been paid and then require the corresponding payroll taxes to be paid. Payroll taxes are personally assessable against owners and people with financial authority over the business. Therefore, if you forget to pay yourself a reasonable salary from your S Corporation, not only could taxes get assessed against the business but they could also be personally assessed against you and your personal assets.
If you have an S Corporation and have further questions, or are in this situation because of an audit, contact us at Hone Maxwell LLP today to discuss your options. Also, you can follow us on twitter @HMLLPTax or facebook at www.facebook.com/HoneMaxwellLLP for more tax tips and the latest updates on tax news.