Today I want to continue on the topic of business entity selection.  One of the more popular options in recent years has been the S Corporation.  S Corporations are popular because they not subject to double taxation and all the income is not subject to self-employment for the owner.  However, if the business is showing a profit then the active business shareholder needs to be sure to take part of their compensation as a salary or the IRS could reclassify it as such (and add on penalties and interest).  The amount taken via salary depends upon the specific situation but I typically give people guidance of 50% as salary and 50% as profit.  Some other things to look out for:

-Shareholders need to take equal distributions based on their percentage ownership.

-Retirement plan contributions are going to be based upon the amount of W-2 compensation.

-Health insurance premiums for shareholder employees need to be included in box 1 of the W-2.

-S corporation tax returns are due 3/15 and are subject to $89 per month per shareholder if late.

-The S Corporation tax return will impact each shareholder's personal tax return (the S Corp needs to be done first).

Feel free to contact me with any questions.