I want to form a S corp or LLC treated as S corp for a new business. I will be the only owner and I'll be working for the business. Does that make me an officer of of it and also an employee? And what about getting paid. I learned that if I take a distribution it wont get self exmployement tax on it. I have seen that 60% salaray and 40% distribution is good. Don't you think 70 and 30 are more fair? I want to avoid as much problems with the IRS. But maybe the 60 40is common?Thanks
Part of the team you need is a CPA familiar with the habits of the IRS. I know of no "bright line" or "safe harbor" about the percentages. If you are the only worker at the business, yes, you are an employee. Consider using a lawyer to discuss your business formation so that you do it correctly. Although they pretend it's possible online, do it yourself incorporations are normally defective in either small or large ways.
The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.
Agreed ... best to get a professional team together to advise you,... CPA and business lawyer. There's one good way to cut down on IRS "Problems" but that won't 100% prevent an audit............
Answer given for general advice and is not a legal opinion, which would require an analysis of the facts and circumstances as well as the applicable law and regulations.
If you work at the corporation, you will be considered an employee and must be placed on the payroll. The payroll has to be “reasonable” taken into account several factors; compensation of someone in your position in comparable business, what you would have paid another person to run this business, the total income before splitting it between your salary and distribution, inter alia. Working with an experienced CPA or tax attorney would be very helpful The information presented herein is for general purposes only. It is not intended to, and may not be construed as legal, tax or accounting advice. For specific advice, please consult a attorney in person. Good luck. Zaher Fallahi, Tax Attorney, CPA (California).
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