Paying ourselves as business owners

[snowforfun4]

I will get professional advice from a CPA, but wanted to run a few things by you guys first. So here is the setup...

My wife and I have a fairly new construction company which is 100% in her name at present (just suits our needs at present). It is an Ohio S-Corp and was established 16 months ago. We had a profitable year in 2013 and took only a minor amount out in the form of distributions. My SIL does our payroll, basic accounting, payroll taxes and local taxes. Here are my questions:

Research indicates we must pay the Admiral a "reasonable" salary for the work on the business. She has a full time job and does not do much, if anything, in our company. I take care of the company, but do not draw any payment. How do you who are in the same situation balance corporate taxes and personal income taxes while staying in line with the IRS?

Cash flow is a huge issue for us this early in the game. As I said, the company did pretty well in 2013. I can adjust % complete on work in process to keep job profits in line. Is there anything else "after the fact" that can be done? I want to pay our fair share, but I hate to bust my hump for 12 months then give all the gravy to Uncle Sam.

Thank you in advance for your thoughts!

 

[204 Escape]

Re: Paying ourselves as business owners

I work in the commercial construction industry. We were always told the following:

1) Set the company up in your wifes name to obtain "minority status".
2) That the company would always be notified of up coming jobs. (Do you get the Dodge reports?)

The above is "lunchbox talk". I don't know if it's true.

As far as residential, I have no idea.

 

[bajaunderground]

Re: Paying ourselves as business owners

From my experience, you can pay the wife however much you want in salary ($1), dividends or bonuses, regardless of how much work she actually does. The business should be paying you a salary/hourly wage if you're an employee. If your an owner and/or share holder dividends can be disbursed to you as well.

I think where a lot of smaller businesses that are incorporated get into some $ issues is commingling of funds? There are very strict banking rules for corporations, but in return there are some decent tax benefits as well.

As far keeping money in the business, because of the type of work you guys provide, you're likely to have some litigious situations arise (I hope not, but it's a reality in the construction business); judges can immediately freeze all assets in the corporation (S-corp, LLC, Inc.) until resolved, so if you use it like personal account, there can be some issues with that?

Also, you should be paying taxes quarterly (I forget with IRS code stipulates this?) to keep from getting behind to the Uncle Sam...

I think your 100% correct in getting a GOOD cpa to handle all the tax things...there are literally thousands of benefits to having an S-Corp, as long as you play by the IRS's rules!

Good Luck!

~Brett

P.S. As a small business owner (sole proprietor-easiest for me as I make under $100,000K annually from it.) the above are from my experiences and may not apply to your situation?

 

[snowforfun4]

Re: Paying ourselves as business owners

Do NOT listen to gossip and rumors and go straight to your CPA or tax attorney!!!

From what I read in your post you are playing fast and loose with the barrier between the corporation and your personal fianc?s and that my friend is the road to more hell than you can imagine. It can / will jeopardize your corp. status, insurances (both corp. and private), cause you to re-file all your pervious tax returns from when the corp. was drawn up, allow your corporate veil to be pierced with a law suit and that drags all your personal fianc?s into it.

This is THE SINGLE BIGGEST MISTAKE owners of small corporations make and few ever recover from it. RUN don't walk to competent help!!!

I may not have been very clear on what we are doing. We have a business bank account in addition to our personal ones. Only business expenses and payment (in the form of distributions in lieu of salary) to my wife come out of that account. No personal money goes into the business and no business funds go into personal accounts.

 

[64osby]

Re: Paying ourselves as business owners

I ran an S corp in Michigan for over twenty years. I ran a zero profit corp ( corp. tax returns would show -$500 to less then $1,000 profit, personal income was excellent), never more then 3 years in a row with a loss. All profits were withdrawn at the end of each year and deemed personal income. Money was loaned back to cover operating expenses as required until profits from the next year allowed the loan to be paid back. I did this to minimize corporate taxes and never borrowed from a bank. You pay corp tax on profits left in the company and will pay personal tax when they are withdrawn. I consider this to be double taxation. Discuss this with your CPA.

Added info - You should be drawing a salary or a percentage of every job to pay yourself.