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Level 1

S Corp Advice on Distributions, Commissions/Bonuses for multiple equal shareholders

I am not an accountant and don't have a background in finance, so please interpret what I'm trying to ask as best as possible.  

 

We have an S Corp with two 50% shareholders. 50% is in the form of a family trust where the owners helped provide the capital to get the business up and running. The other 50% handles all sales, marketing and runs the day to day business. I understand distributions need to be equal to the 50% halves. However, is there a way to pay the 50% that handles sales additional bonuses/ commissions based on how sales are going? We already have a small biweekly salary set up for the sales half, but want to be able to include a performance bonus. The rest of what we'd be willing to pay out would be distributed evenly among the 50% halves.

Ideally the payouts would be on a quarterly basis.

I'd appreciate any feedback to know if this makes sense, is possible, and how to go about it.

2 Comments
Level 9

Re: S Corp Advice on Distributions, Commissions/Bonuses for multiple equal shareholders

It would be best to consult your personal Accountant for advice on your S Corp distributions to shareholders. There are many variables to consider, including any existing partnership agreements, and there is not enough information without the visibility your personal Accountant would have. 

Level 1

Re: S Corp Advice on Distributions, Commissions/Bonuses for multiple equal shareholders

Per the IRS rule, the shareholder employee who provides substantial services need to be paid reasonable compensation. Since the 50% who handles sales and marketing conducts the day to day business should be paid more in terms of wages and pay self employment taxes and take lesser distributions.  Even if you pay bonus, it has to been run via payroll and be subject to SE tax. Hope your question is answered

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