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Business & farm
Some additional comments:
- Apparently the CPA you either talked to or visited did not do a good job of explaining S corporations and how they work. You shouldn't be having to ask this question if you had a good one on one with a tax professional who provided thoughtful advice.
- The key focus of the IRS is that they look for "reasonable wages" being paid. There is no definition for that term. It is just based on facts and circumstances.
- I would agree that if you are just making ends meet or generating little income in the beginning, you may not need to pay yourself a wage.
- The key to bullet 3 is that you also don't make any distributions, other than sufficient distributions to pay the tax on the S corp earnings that are passing through to you (federal and state).
- As a shareholder in an S corporation, you will receive a Schedule K-1 each year that reflects your share of the S corporation earnings and separately stated items. Your K-1 will then be entered into TT. The software has a good format to walk you through the input.
- Also make sure that someone maintains your tax basis in your S corporation. This is key.
- I recommend you either have another meeting with the CPA to go into more detail so that you understand the mechanics, or if you are questioning this individual, make a switch until you feel you have a good relationship with this individual.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
Also keep in mind the date of replies, as tax law changes.
‎January 3, 2022
4:25 PM