How do I pay myself as an owner of an S corp?

A corporation can choose to be treated as an S corporation, which passes corporate income, losses, deductions, and credits through to its shareholders. Corporations can avoid double taxation through the S corp route because income is taxed as part of the shareholders’ personal tax returns. Double taxation is exactly what it sounds like, and happens when both a company and its shareholders are taxed.

Paying myself as an owner of an S corp

As a general rule, a shareholder who provides more than small services for the corporation is considered an employee, and therefore would need to pay themselves a reasonable compensation through payroll.

What is reasonable, you ask? The IRS has a bunch of rules it needs to follow, so chat with a tax advisor to ensure your compensation is in line with all federal requirements. Also remember your reasonable compensation must be paid before making any non-wage distributions.

 

Curious about other business structures? Here’s a quick breakdown:

Business structure

How to pay yourself

Tax return

Sole proprietorship

Owner’s draw

Schedule C (Form 1040)

LLC with one member

Owner’s draw

Schedule C (Form 1040)

LLC with multiple members

Distributive share

Schedule K-1 (Form 1065)

Partnership

Distributive share

Schedule K-1 (Form 1065)

S corporation

Distributive share

Schedule K-1 (Form 1065)

C corporation

Dividends

Dividends income on Form 1040

Corporate Officer

Employee wages (if you perform more than minor services for the business)

Form W-2

 

Awesome

Thanks so much for your feedback!

Did this article solve your problem?