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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 111468
Experience:  All corporate law, including non-profits and charitable fraternal organizations.
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Can I take a draw from my S Corp

Customer Question

can I take a draw from my S Corp
Submitted: 12 months ago.
Category: Business Law
Expert:  Law Educator, Esq. replied 12 months ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
You may have noticed you are not getting a speedy response from experts, this is because your history with this site shows you do not leave positive feedback for experts and because experts are not employees of this site they get no credit for spending time with you unless you leave positive feedback (many customers do not understand this, which is why I am pointing it out to you). If experts see customers do not leave positive feedback for other experts they worked with in the past, then they will not answer new questions.
With the above in mind, if you would like to continue with that understanding, please tell me what type of draw, you mean draw against salary/wages?
Customer: replied 12 months ago.
I am retired. A former client has asked me if she can draw a salary from her S corp. As I recall, I don't think she can. I would like to give her the correct answer. Thank you.....................Mary
Expert:  Law Educator, Esq. replied 12 months ago.
Thank you for your reply. I am retired as well, so please do not forget to leave positive feedback.
The owner of an S-corp may pay themselves a reasonable salary for work performed for the S-corporation and would be treated like an employee for doing so, meaning employment/payroll taxes must be paid on their salary. If the S-corp owner takes wages without paying taxes or tries to pay themselves a low wage for work and take a large distribution or draw of dividend/proceeds to try to avoid paying payroll taxes, this is what is not allowed by the IRS.
So to take a draw, it must be reasonable for the work done and payroll taxes must be paid on it as wages just like any other employee.
See: http://quickbooks.intuit.com/r/payroll/salary-or-draw-how-to-pay-yourself-as-business-owner

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