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January 8, 2021
Question

Please how can I withdraw money as an S-Corp with little or no taxes on what I am withdrawing?

  • January 8, 2021
  • 1 reply
  • 2 views
As the business owner, i want to withdraw $900, I usually do this via employee wages and I am taxed twice, first as the employee and then employer taxes. Please how do I withdraw funds more economically? AM I doing something wrong? Please help

1 reply

john-pero
Level 12
January 8, 2021

You are not doing anything wrong, in fact you MUST collect a "reasonable wage" as loosely defined or not defined by the IRS BEFORE you take any non-tax distribution, which is simply a reduction of your basis (ownership of the company).  Reasonable depends on your industry, if you are profitable, and what you do for the business.  There is no set amount or percentage of profit but you should compare yourself with your peers that do not own their company but perform the same function.

 

If you show $100,000 profit before owner wages then, depending on what you do, anywhere from 50-75% might have to be wages. Take that $100k and compare a painter with an accountant. In general terms accountants make more than painters (maybe not). The painter might only be expected to take $50k W2 while the accountant might be expected to take $70k-$90k of that same $100k. After that, though it is just part of your pass through profit you are drawing (in advance)

 

I doubt you would get in too much hot water if you took the $900 every other pay period as wages and alternate periods as distribution. Wages are supposed to be regular although some S corp owners have the luxury of waiting until year end to draw both a single check salary and the remainder in distribution