Greenleaf Accounting

Virtual Bookkeeping & Accounting Services

(814) 450-0072
  • Email
  • LinkedIn
  • RSS
  • Twitter
  • Home
  • Services
  • About
  • Testimonials
  • Blog
  • Contact

How to Pay yourself as an S-Corp

February 5, 2019 by Deb Howard Greenleaf

If your business is set up as an S-Corp (or an LLC with an S-Election), you are technically both an employee and a shareholder. Which means you should be paying yourself a salary as an employee, but you’re also able to accept distributions as a shareholder, easing a bit of the employment tax burden. (That’s one of the benefits of filing as an S-Corp, after all!) 

Paying a Salary

As an employee who provides substantial services to your business, you must pay yourself a reasonable salary. Now, the topic of reasonable compensation is much debated. Reasonable compensation can look very different for every person and every S-Corp. But the important thing is to consider how the IRS will view your role and reasonable compensation. A good rule of thumb is to pay yourself at least the average salary for the job that you perform within your business. (You can find that information in the Bureau of Labor Statistics salary database). 

Keep in mind that paying yourself a salary means setting up payroll, filing quarterly payroll reports and paying payroll taxes at all governmental levels. The good news is that paying quarterly payroll taxes means you’re avoiding the dreaded self-employment tax problem – the bad news is that the penalties for missing payroll tax deadlines are steep. So make sure you’ve hired an experienced bookkeeper to help you sort through the payroll tax waters.

Paying Distributions

Now, here’s the best part of setting your business up as an S-Corp: you can take distributions that aren’t subject to employment tax. That’s the benefit of being a shareholder! You can take these distributions at any time – simply pay them to yourself and label them accordingly. Do keep in mind that while you can take distributions at any time, there are other factors to consider. Distributions can get a little tricky, so this is another situation where your accountant can help you make the best choice for you and your business. 

Find the right ratio

There is no perfect ratio to follow to make sure you are within “reasonable” limits. What is right one year may change the next. It will vary based on whether you are a managing partner or have a smaller role. It will vary based on the business’s income level, changing economic situations, and many other things. Finding the right ratio is a delicate balancing act that must be done every year.

Deb Howard Greenleaf
Deb Howard Greenleaf

Deb Howard Greenleaf, EA, CEO and Principal, of Greenleaf Accounting Services provides virtual accounting and bookkeeping services and specializes in financial management to consultants, coaches, solo professionals, and other small business owners across the US. Deb is an Enrolled Agent (EA)—an IRS-licensed tax professional—and specializes in small businesses and entrepreneurs filing Schedule C or as an LLC. As an Advanced Certified QuickBooks ProAdvisor, Deb spends her day in QuickBooks Online and specializes in providing QBO support.

Related posts:

Default ThumbnailClosing Tax “Loopholes” on S-Corps Default ThumbnailGuidelines for Hiring Subcontractors Default ThumbnailWhat's Your Audit Risk? Default ThumbnailIs an S-Corp Right for Your Business?

Filed Under: Best Practices, Bookkeeping

Free 1099 Success Cheat Sheet

Want to be ready for 1099s at year end? Learn how with my 1099 cheat sheet.

Browse by Topic

  • 1099 Reporting
  • Best Practices
  • Bookkeeping
  • Greenleaf Accounting
  • New Business
  • Quotations
  • Small Biz Taxes

Recent Posts

5 Best Practices for Invoices That Get Paid Faster

We're excited to introduce a few new voices with the first in a series … [Read More...]

How to Pay yourself as an S-Corp

If your business is set up as an S-Corp (or an LLC with an … [Read More...]

Is an S-Corp Right for Your Business?

With all the recent tax shakeups, more and more small businesses are … [Read More...]

Estimated Quarterly Taxes Due Soon!

It's that time! The deadline to pay your fourth estimated tax payment … [Read More...]

Contact

(814) 450-0072

Free 1099 Success Cheat Sheet

Want to be ready for 1099s at year end?
Learn how with my 1099 cheat sheet.

Recent Posts

  • 5 Best Practices for Invoices That Get Paid Faster
  • How to Pay yourself as an S-Corp
  • Is an S-Corp Right for Your Business?
  • Estimated Quarterly Taxes Due Soon!
  • Budgeting for 2019

Reliable, Efficient and Precise

“Deb has handled my company’s invoicing and bookkeeping with impeccable attention to detail and service for several years. She is reliable, efficient and precise – remembering logistics, following through on details, and always smiling. I appreciate her help and value her expertise in handling my finances. Deb is the quintessential professional – I highly recommend her without hesitiaton.”

– Dr. Camille Preston, Owner,
AIM Leadership, LLC

Knows Her Stuff Inside & Out

“Deb is an amazing person, not only at what she does (in which she excels) but her personality is simply the best! She is always in clear control of her work; she knows her stuff inside and out; and she’s such a joy to work with and to count as a friend! I would highly recommend Deb to anyone who is looking for someone who is “above and beyond” the normal bookkeeper.”

– Vickie Turley, Chief Administrative Manager,
BossaNova Consulting Group, Inc.

© 2023 Greenleaf Accounting Services · Privacy Policy · Terms and Conditions