s-corp salary/bonus strategy

I've just formed a single-shareholder S-Corp.* My business income is very irregular - I may have no income for several quarters, and then $60k in a single quarter. Expenses are also variable, as they consist
largely of equipment, travel, meals, training, etc. - so that they fluctuate heavily throughout the year, and also year-to-year. Furthermore, expenses are not closely tied with income.
I understand that I have to carefully apportion the net income between a reasonable salary and distributions. However, it's difficult to determine my overall tax picture until year's end, because of the mentioned variability. Also, I don't want to leave a significant amount of cash in the s-corp's bank account, as it earns no interest there. My dilemma is: how to invest my income without 1) waiting until the end of the year to do it, or 2) having to decide between salary / distribution every month.
My tax preparer has suggested that I pay no salary until the end of the year, when I will determine the correct amount of salary & pay it as a lump sum "salary bonus", which will be considered by the IRS to have been paid throughout the year for tax purposes. He has also suggested that since the s-corp is a flow-through entity, I can move money out of the business account into higher interest personal accounts as soon as it is earned, and don't have to cut myself physical salary checks throughout the year. Questions:
1) Is it reasonable to have my salary paid as an annual lump sum? I assume I'd I be better off paying a low salary on a quarterly or monthly basis, then "correcting" at year's end via a bonus - but I'm not sure how to do this without leaving a significant amount of income sitting in the business account all year (see #3 below).
2) If I transfer most of the money out of the business bank account in order to make interest on it, there may not be a large enough balance at year's end to pay my salary bonus & associated FICA. If I then move money back into the business account for that purpose, wouldn't it need to be categorized as a loan or capital contribution? (Thus generating a net loss for the S-Corp for the year.) It seems unlikely that I could just "put the money back" at the end of the year, in preparation for paying my salary.
3) If money transferred out during the year is classified as a salary bonus at the end of the year, won't I run afoul of monthly Federal Tax Deposit requirements, given that the actual transfers took place earlier in the year?
4) Maybe it would be best to pay some low percentage (50%?) of income out as salary on an ongoing basis (with associated monthly tax deposits), and 40% out as distributions. At the end of the year, I'd re-classify some of those distributions as salary, generating back- payroll, & pay the (late) tax deposits + penalties out of the 10% that remained in the business account.
Overall: Is there any way to move most/all of the income out of the (low interest) business account during the year, without committing to a salary number until year's end? It seems if I underestimate during the year, I'll owe late tax deposit penalties, and if I overestimate (for instance by basing it on 100% of last year's tax), I'll have lost the employer's share of FICA on any unnecessary salary paid during the year.**
mitch
* - Actually - it's an LLC with elected S-Corp tax status, and I am the sole member. Why I went this route vs. a "straight" is another discussion. For the purposes of this post, just take it as written.
** - Example: Business grosses $100k in the first six months, with $10k in expenses. I pay $70k as monthly salary, sending 15.3% to the IRS. In the second six months, business grosses $0, and has $30k in expenses. I've ended up paying FICA on at least $10k unnecessarily, only half of which is recoverable via my personal return.
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The most important thing with an S-corp is to ensure that your entire compensation package is reasonable for the services you provide the corporation.
I have been told by several practitioners that a problem only arises when the S-corp owner/employee takes distributions that are not a part of compensation and the IRS audits that corporation. If the IRS auditor determines that compensation is unreasonably low, the auditor will recharacterize some or all of those distributions as salary and assess back FICA and Medicare taxes on the corporation (plus penalty and interest).
It is possible to have the S-corp invest in short term instruments rather than take a distribution that you personally invest.
It is also possible to have the S-corp pay you a relatively small monthly salary and then make up any difference with a year-end bonus.
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Publication 15 suggests that it is possible to pay yourself once paycheck a year. See annual payroll period on page 40. The problem is you have to calculate your profit before December 31 and pay yourself on on before December 31.
But then again, chapter 8 of the same publication says:
<Quote source="http://www.irs.gov/publications/p15 / ar02.html#en_US_publink1000202364">
8. Payroll Period
Your payroll period is a period of service for which you usually pay wages. When you have a regular payroll period, withhold income tax for that time period even if your employee does not work the full period. No regular payroll period. When you do not have a regular payroll period, withhold the tax as if you paid wages for a daily or miscellaneous payroll period. Figure the number of days (including Sundays and holidays) in the period covered by the wage payment. If the wages are unrelated to a specific length of time (for example, commissions paid on completion of a sale), count back the number of days from the payment period to the latest of:
*
The last wage payment made during the same calendar year, *
The date employment began, if during the same calendar year, or *
January 1 of the same year.
Employee paid for period less than 1 week. When you pay an employee for a period of less than one week, and the employee signs a statement under penalties of perjury indicating he or she is not working for any other employer during the same week for wages subject to withholding, figure withholding based on a weekly payroll period. If the employee later begins to work for another employer for wages subject to withholding, the employee must notify you within 10 days. You then figure withholding based on the daily or miscellaneous period.
</Quote>
Another thing is what if you work some hours one year and had no profit, and the same number of hours the next year and a lot of profit. Say the normal salary is $60,000 and you made $300,000 the second year. Then the second year do you pay just $60,000 and take the rest as a distribution, or do you pay $120,000 which includes back- pay for last year?

Is it possible for your S corp to own an interest bearing checking/ savings account, and securities account (for holding US treasuries)? I once heard about a rule that interest accounts of corporations must be non-interest bearing, but ETrade lets you open interest bearing accounts for corporations, and you could do the same on Paypal too. You can also open securities accounts for S corps.
There is a personal holding company tax, and excess unaccumulated earnings tax -- but these only apply to C corporations.
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I don't understand why this is an issue. It's all salary, whether it is taken weekly or yearly. The tax should be the same in any case. What am I missing?
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Stu
http://downtoearthlawyer.com
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wrote:

Maybe there are special rules somewhere that you must be paid a monthly salary. I'm not aware of any such rules, but who knows what's out there.
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That makes no sense, especially considering the games lots of corporations play in order to maximize float interest. (E.g. they used to send checks from a bank in the middle of nowhere, so the check would take an extra day to reach their bank.)
Seth
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