question from newbie on S-corps

Jan 29, 2008 3 Replies
K

Good evening all,



I have a set up an S corporation for my computer consulting business. I have three clients and one required that I have a corporation prior to hiring me. The other two clients hired me through agencies, which employ me as an individual.



Am I correct in thinking that if I made $50000 from that one client, that on my 1120S, I can show $50000 in income and then $50000 in distribution to shareholders (i am the only shareholder) and that's pretty much it.



I will then show the $50000 on my 1040 and go on from there.



does that sound right, or am I missing something big.



Thanks, Kathryn


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K

Food for thought:

A distribution to a shareholder does not count as earned income, IIRC. As a result, you can't tuck that money away into a 401k, SEP, Roth, etc...

You may want to consider paying out some of that as salary and some as shareholder dividends.

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H

When in the course of an S corporation, one just doesn't consider paying out a salary, but must do so. And a reasonable salary at that; not just a token salary. And of course payroll taxes then come into play with attendant state and federal unemployment taxes.

ChEAr$, Harlan Lunsford, EA n LA

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E

I'm with Harlan on this one - and I'd add that you are in over your head. You need professional help OR severals years of study in taxation.

Gene E. Utterback, EA, RFC, ABA

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