Paying Myself

The dividends from an S-Corp are not subject to tax, they are just cash distributions. What *is* subject to tax is the net profit of the S-Corp which you won't know with any certainty until the end of your S-Corp's tax year. There is no method for withholding income tax from these distributions that is analogous to salary withholdings. If you want to pay quarterly estimates, you are free to do so, but there is no causal link between the cash distributions and the quarterly estimates.

Finally, you cannot have the same SSN as your S-Corp if for no other reason than S-Corps don't have SSNs, they have EINs. Same number of digits, but formatted differently.

Ira Smilovitz

Ira,

Thank you.

The SSN was for *me* not the corporation.... I set *me* up as two "employees" with different tax rules. But, with the same SSN for each, QuickBooks doesn't like that. Probably a good thing.

But, I get the points you made.

The other question I might ask:

Since I am payed as an employee, I suppose I could force those checks all the way to zero if I want by "overpaying" Federal Witholding (in order to cover the tax on corporate profits). No penalty for overwitholding!

It is my understanding that paying via witholding incurs no penalties whereas underpaying quarterly estimates does. Now, I guess there's no way to know what estimated quarterly payment would be appropriate for the S Corp profits - or is there? It seems that overwitholding for the "employee" could add to the total tax deposited with no problem and also avoid any quarterly payment issues. Or, is this thinking misguided? In the end there's only an issue if the tax deposited during the year is woefully inadequate for the taxpayer, right?

Thanks!

Fred

Yes, you can "overwithhold" on the salary checks in lieu of making quarterly estimates.

Your understanding is correct. If you keep good, up-to-date business records for the S-Corp, you (or your accountant) should be able to project your S-Corp's earnings "quarter" by "quarter" (remember tax quarters are not all equal). You can then adjust your withholdings "on the fly" to match your projected individual tax liability. This is not necessarily a trivial exercise, but it is certainly do-able.

Ira Smilovitz

Ira,

OK - thanks again. Below: Ah, doable - but is it *necessary* to avoid a penalty in underpayment of a quarterly?

Fred

Here's a thought problem: Suppose you pay yourself HOURLY. Even at the minimum wage, a small business owner would be making $80k/year (counting 80 hours/wk overtime). What with taxes and SS, you'd work yourself broke!