jump to navigation

Requirements For Officer Compensation…. December 13, 2009

Posted by Julie Duriga, CPA in Uncategorized.
Tags: , , , , , , , , , ,
1 comment so far

This was a question that a blog reader asked me.  It is so useful when readers ask questions because it gives me material to write about.  So keep your questions coming.

I usually suggest that active officers run payroll on themselves at a minimum once a quarter.  Even if the business can only afford to pay the officers through payroll $500.00 per quarter, that is better than nothing.  This makes the business look more like a “going concern” (a real business that is sustainable) to the IRS than if there is an absence of payroll inside the corporation for its active officers.  The IRS starts to wonder why would the officers stay in this business if the business can’t afford to pay its own officers after a period of time. 

The only requirement that I know of is that officers must be compensated by giving them a reasonable salary for your industry.  If your S Corporation is a restaurant, then the business must compensate the officers who work inside the restaurant a reasonable salary for the restaurant industry.

What is an active officer?  This is an officer who works inside the corporation.  An officer who reviews the financials on a weekly basis or an officer who actively generates sales calls or an officer who does the dishes is considered active.  If the business has officers who show up every now and then for board meetings or who stops by occasionally to check on their investment is not considered active.

In my state of North Carolina, the power of the payroll law rests with the employer.  The employer can really do whatever they want to do with their employees as far as paying frequency.   I don’t know of any employer that pays its employees less than once a month.   Check with your state department of revenue for your state’s payroll laws.

Officers can be compensated on a different schedule than its employees.  Sometimes when there is no money, the employees get paid first and the officers just have to wait.  Of course, it is easier to run payroll all at the same time, but sometimes this is not possible.

 In conclusion, the officers can be compensated whenever the Corporation deems appropriate.  At at minimum, the compensation should occur at least once a quarter.  The IRS requires that active officers be compensated a fair and reasonable salary.  Employees and officers can be compensated on the same schedule if the funds permit this.  Be careful of paying your officers with fringe benefits.  Fringe benefits to S Corporation officers are usually considered compensation by the IRS and have to be added to the W-2 as taxable wages.

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!

Advertisements

Do I Pay My Income Tax Bill From My Business? December 6, 2009

Posted by Julie Duriga, CPA in Uncategorized.
Tags: , , , , , , , , , , , ,
2 comments

Of course, income taxes are different than unemployment taxes and from the employer’s portion of the social security tax.  Those taxes are deductible.

Income taxes are held from your own income and need to be paid from your salary bucket inside your business.  If your paycheck says that you took home 700.00, then 300.00 is really taxes.  In t heory your paycheck should be 1,000.00 to cover taxes which is normally around 300.00 to be safe.  To be safe means you are not stuck with an enormous tax bill at the end of the year.

If you are a sole proprietor or a partnership then your taxes are paid from the guaranteed payments or from your owner’s draw.  This draw can take place through a physical check written from your business or through a bank transfer from your business account to your personal account.  It is then your responsibility to remit quarterly your income taxes and your social security taxes to the IRS and to the state agencies.  Those taxes are paid from the money that was transferred to your business account.  Some business gross up their partner’s draws and guaranteed payments to cove the cost of the taxes.  Instead of bringing home $1,000.00, they might bring home $1,300.00 to cover the taxes.

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!

My Company Isn’t Profitable…Do I Have To Pay Taxes? November 28, 2009

Posted by Julie Duriga, CPA in Uncategorized.
Tags: , , , , , , , , ,
add a comment

My Company Isn’t Profitable…Do I Have To Pay Taxes?

No!  If your company isn’t profitable you do not have to pay income taxes.  If you have employees or you are an employee, you will have to pay social security/medicare taxes.

I believe the IRS doesn’t really start looking closely at your business until after three unprofitable years.  If you have been unprofitable for three years, the IRS starts to wonder why are you still in this business?  Is this a business or a hobby?  Then you start to get into the whole concept of hobby losses. 

If you are unprofitable for three years, start looking at your numbers…your gross profit, your percentage of payroll to revenue (if your payroll is 60K and your revenue is 100K, that means your payroll is 60% of your revenue…that is too high, your staff needs direction or they don’t have enough to do or something).  Maybe you need a new business or a new way to operate your business?

Your salary is deductible if you are an S Coporation or a C Corporation.  Your guaranteed payments or draws are deductible to the partnership.    Your draws inside your sole proprietorship are NOT deductible.  If you are an LLC, check out my blog on the whole LLC scene.  This means that your profits will be lower…which is good for tax purposes…to report lower profits…the lower the profits the lower your tax bill.  Lower profits is bad for bank loans though.  Do you want a bank loan or do you want to pay less in taxes…you can’t have both.

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!

Do I Pay Taxes In My LLC If I Wasn’t Paid? November 16, 2009

Posted by Julie Duriga, CPA in Uncategorized.
Tags: , , , , , , , ,
add a comment

j0439255A better way to ask this question is “Was I profitable?”  rather than “did I get paid in my small business?”  The short answer to this question is if you were profitable, then yes you will be taxed on those profits!  The government doesn’t really care if you brought those profits home via payroll or owners’ draw or if you left them in your business, it is still considered taxable income to you, if you are profitable. 

Depending on your filing status of your LLC, this determines the degree to which your profits will be taxed.  If you are partnership or sole proprietor, then your 100% of your profits will be taxed for social security and medicare.  If you are an S Corporation underneath your LLC, then your business profits will be taxed at your regular income tax rate.

The answer to your question is: you pay taxes if you were profitable.  Your income statement or profit and loss statement will let you know if you were profitable.

Visit us at our website to get your free E-Book titled “How Do I Pay Myself? The Entrepreneur’s Guide to Building a Business AND Bringing Home the Dough.”  www.UniversityForBusiness.com

We also offer a really cool twenty minute video about how running your business affects your bottom line. We use islands, cars and bridges to demonstrate the movement of profits and losses between your personal and business bank accounts. This immediate download is avaialble for only $6.99. Twenty minutes with a CPA for only $6.99, what a deal!

Accounting Is Sexy! October 30, 2009

Posted by Julie Duriga, CPA in Uncategorized.
Tags: , , , , ,
1 comment so far

Japanese Tearoom 2Yes!  It is true accounting is sexy.  Sometimes the numbers need to be lured out from their secret hiding places as they wait to be invited into your life.  Sometimes the numbers need to be played and manipulated in order to get what you want from them.  Sometimes the numbers are aggressive and loud as they beg you to pay attention to them.  Your numbers sometimes wait for you to massage them and run them through your fingers.  Sometimes when you interact with your numbers the results can be heartbreaking and other times the numbers will bring a feeling of elation. 

Your numbers can bring you direction, focus and clarity if they are appreciated and respected.

In addition to being sexy, your numbers can bring you the feeling of control and power.

Pay attention to your numbers and they will guide you through confusion, uncertainty and bring the satisfaction of helping you make decisions with a solid sense of fact.

 Visit www.UniversityForBusiness.com for other tools to help you love your numbers.