Q: 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 by going this 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.

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 non-wage distributions.

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Comments

  • Carla Snyder

    If your S Corp is small scale (making less than reasonable amount for the service) and you are the only owner/shareholder essentially all of your income would be considered salary rather than a distribution. Therefore can Gusto set up a payroll with a W2 for an S Corp owner (with no annual distribution amount or owners draw)?

    Reply
    • Gusto Editors

      Hi Carla! Thanks for your questions. We strongly recommend you reach out to our sales team at [email protected] or by calling 415-930-4532, as they’ll be able to most effectively answer your specific questions about our product and setting yourself up as an S Corp owner on there.

      Reply
  • Sasa

    The article is not helpful. How do you actually pay yourself in GUSTO IS THE QUESTION?

    Reply

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