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Can I Pay Myself Dividends In My S Corporation? December 20, 2009

Posted by Julie Duriga, CPA in Uncategorized.
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Can I pay myself dividends in my S Corporation?  Yes!  You can pay yourself dividends in your S Corporation.  If you are actively working your S Corporation, you should pay yourself a salary.  As mentioned in the previous blog post, “Requirements For Officer Compensation” the business is required to run payroll on the officers.  This means that the S Corporation should treat the officers as employees and pay unemployment insurance, payroll taxes and do the withholding on the officers.  This salary should be a reasonable amount for your industry.

Dividends are fun because they are taxed at your personal income tax rate.  They are not subject to social security and medicare taxes.  Dividends should be a smaller percentage of salaries paid to officers than the salaries are paid at.  Dividends might be 20% of salaries and officer payroll would be 80% of overall distributions.  If you paid your officers $100.00, you might put $20.00 throught dividends and $80.00 through payroll.  This would be a safe bet…of course, check with your own CPA or accountant for further assistance in this area.  You need professional, individualized help with this question, I am throwing out a ball park figure for you to get started.

Dividends are not a deduction on the business profit and loss statement.  Dividends are effectively a reduction of cash and not a reduction of profits.  Dividends come out of your profits.  If your business has $10.00 in profits, and you have $10.00 in the bank, you can pay yourself a $10.00 dividend.  You are still reporting $10.00 in profits to the IRS.  The only way to have this $10.00 be deductible is to run this amount through your payroll system.

Visit www.UniversityForBusiness.com for more helpful resources on running your small business.

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Comments»

1. TRMiller - December 21, 2009

I am unsure of the appropriateness of the term “dividends” in relation to an S-Corp. Why not simply call it a distribution? Is this not a more appropriate term?

Julie Duriga, CPA - December 21, 2009

Yes, I suppose that distributions would be a more appropriate term than dividends. This was a question that was posed to me and I answered it exactly as it was asked of me. You are correct when you say that a more appropriate term would be distributions. I think the term dividends is used more for big corporations than the smaller S Corporations. What do you think? Thanks for your input!

2. TRMiller - December 21, 2009

am unsure of the appropriateness of the term “dividends” in relation to an S-Corp. Why not simply call it a distribution? Is this not a more appropriate term?

(I didn’t see the “Notify me…” at the bottom when I hit the “say it” the first time.


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