Must a minority S-Corp owner take a salary?

#3 12-19-2007, 10:40 PM

On Dec 18, 9:33 pm, Stuart Bronstein <spamt...[at]lexregia.com> wrote:
- quote -

> Harlan Lunsford wrote:
> > cmay wrote:
> > > I have an S Corp, and I pay myself a salary.
> > > If a friend wanted to invest in my group, and offered to by 30%
> > > of my shares, but wasn't going to actually do any work for the
> > > company, would they still need to be paid a salary before they
> > > are paid any distributions?
> > > Or is this type of setup not something that you can do with an S
> > > Corp?
> > In your facts and circumstances, i.e. the new minority owner will
> > not be actually performing services for the S corp, no salary is
> > mandated.
> I don't do returns, so my understanding may not be complete. But I
> believe S-corp compensations can be divided between what is in effect
> salary (that self-employment tax is due for) and what is in effect a
> divident (that there is no self-employment tax on).
> In this case the working shareholder can take a reasonable salary, and
> the balance is divided between the shareholders based on their relative
> shareholdings.
> Stu

Just to be clear -- S corporation stockholders are not subject to self-
employment tax. Instead, to the extent that there are earnings to
pass through to the stockholders, those stockholders that perform
services for the corporation must be treated as employees and paid a
salary reasonably commensurate with the value of the services they
provide. Stockholder-employees receive W-2s and are subject to FICA
and other employment taxes. The S corporation pays the employer half
of FICA and withholds the employee's half from the stockholder-
employee's paychecks. Stockholder-employees' salaries are deducted in
arriving at net income that is divided among all shareholders
according to their ownership interests (their distributive shares).

A stockholder who performs no services for the corporation is not
treated as an employee, and his or her distributive share of income is
not subject to self-employment tax. Yet.

Katie in San Diego

The foregoing is intended for educational purposes only and does not
constitute legal or professional advice. Nothing contained herein is
intended to be used, or can be used, by any person to avoid penalties
that may be imposed under federal or any state law.

#2 12-19-2007, 04:28 PM

Thanks Guys.

On Dec 18, 11:33 pm, Stuart Bronstein <spamt...[at]lexregia.com> wrote:
- quote -

> Harlan Lunsford wrote:
> > cmaywrote:
> > > I have an S Corp, and I pay myself a salary.
> > > If a friend wanted to invest in my group, and offered to by 30%
> > > of my shares, but wasn't going to actually do any work for the
> > > company, would they still need to be paid a salary before they
> > > are paid any distributions?
> > > Or is this type of setup not something that you can do with an S
> > > Corp?
> > In your facts and circumstances, i.e. the new minority owner will
> > not be actually performing services for the S corp, no salary is
> > mandated.
> I don't do returns, so my understanding may not be complete. But I
> believe S-corp compensations can be divided between what is in effect
> salary (that self-employment tax is due for) and what is in effect a
> divident (that there is no self-employment tax on).
> In this case the working shareholder can take a reasonable salary, and
> the balance is divided between the shareholders based on their relative
> shareholdings.
> Stu

#1 12-19-2007, 04:33 AM

Harlan Lunsford wrote:
- quote -

> cmay wrote:

> > I have an S Corp, and I pay myself a salary.
> > > If a friend wanted to invest in my group, and offered to by 30%
> > of my shares, but wasn't going to actually do any work for the
> > company, would they still need to be paid a salary before they
> > are paid any distributions?
> > > Or is this type of setup not something that you can do with an S
> > Corp?
> > In your facts and circumstances, i.e. the new minority owner will
> not be actually performing services for the S corp, no salary is
> mandated.

I don't do returns, so my understanding may not be complete. But I
believe S-corp compensations can be divided between what is in effect
salary (that self-employment tax is due for) and what is in effect a
divident (that there is no self-employment tax on).

In this case the working shareholder can take a reasonable salary, and
the balance is divided between the shareholders based on their relative
shareholdings.

Stu

12-19-2007, 01:04 AM

cmay wrote:
- quote -

> I have an S Corp, and I pay myself a salary.
> If a friend wanted to invest in my group, and offered to by 30% of my
> shares, but wasn't going to actually do any work for the company,
> would they still need to be paid a salary before they are paid any
> distributions?
> Or is this type of setup not something that you can do with an S Corp?
In your facts and circumstances, i.e. the new minority owner will not be

actually performing services for the S corp, no salary is mandated.

Christmas ChEAr$,
Harlan Lunsford, EA n LA

#-1 12-18-2007, 10:15 PM

I have an S Corp, and I pay myself a salary.

If a friend wanted to invest in my group, and offered to by 30% of my
shares, but wasn't going to actually do any work for the company,
would they still need to be paid a salary before they are paid any
distributions?

Or is this type of setup not something that you can do with an S Corp?

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