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JKCPA, CPA
Category: Finance
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Experience:  Bachelors degree and CPA with Accounting experience.
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Hi, I have a full-time salaried job. I also have a side

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Hi, I have a full-time salaried job. I also have a side job as a civil engineering consultant (S-Corp). I have not had any income this year from the side job (have not paid myself anything either) but will have about $30k of revenue by the end of the year with about $25k of that being profit. The $30k will come to me in multiple payments. My question is how do I pay myself? Should I just write myself a paycheck and take SS, Medicare, & withholdings out? Or should I just write myself a check and pay estimated taxes on it?
Submitted: 3 years ago.
Category: Finance
Expert:  JKCPA replied 3 years ago.
Hello,

Thanks for your question.

Since your business is an S-corp and I assume you are a shareholder/officer of the S-corp, you'll need to set a reasonable salary for yourself. A reasonable salary is one that would be considered reasonable for the work you do for your business and for your industry. You can pay yourself hourly or however you choose. Of course, you probably would not want to pay yourself more than your profits to avoid net losses.

After you decide on your salary, you'll need to pay yourself and issue yourself a W-2 after the end of the year. You will have to file and pay employment taxes on this salary (FIT, FICA, SIT, FUTA and SUTA).

 

Any remaining profits above your reasonable salary may then be taken as an S-corp dividend distribution which is not subject to employment taxes.

 

A good article on this can be found here: http://taxes.about.com/od/scorporations/qt/scorp_payroll.htm

 

Best regards,

 


Customer: replied 3 years ago.
Being a side business, what would a "reasonable" salary be? I did this full time with employees until about 2 years ago when the economy got a hold of the business. My reasonable salary would be probably $80,000 if I was doing it full time, but I'm not.
Expert:  JKCPA replied 3 years ago.
It's not set in stone. But I suggest you set an hourly salary. If the full time position would pay $80,000, divide by 2080 (40 hours x 52 weeks) hours = $38.46 per hour. Then estimate your hours. For example, you estimate you worked 650 hours in 2011, your "salary" would be $38.46 x 650 = $24,999.
Customer: replied 3 years ago.
OK. Makes sense. This is a very profitable job and I will probably only have maybe 60 hours into. Other than that I probably spend 4 hrs a month on this business. That would be 108 hours which would be $4154 salary. The rest is distribution?
Expert:  JKCPA replied 3 years ago.
Yes, but in case the IRS questions it, be sure to keep a good record of hours you devote to the business.

Here is another link to IRS guidance on this subject:
http://www.irs.gov/newsroom/article/0,,id=200293,00.html
JKCPA, CPA
Category: Finance
Satisfied Customers: 5798
Experience: Bachelors degree and CPA with Accounting experience.
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