S-Corporation FAQs

Understanding S-Corps, Payroll, and Your Tax Responsibilities

What is an S-Corporation?

An S-Corporation is a tax election that allows a business to avoid double taxation by passing income, losses, deductions, and credits through to its shareholders. It’s available to LLCs and corporations that meet IRS requirements and file Form 2553.

Do I need to be on payroll as an S-Corp owner?

Yes. If you work in the business, the IRS requires that you pay yourself a reasonable wage through payroll. This means regular paychecks and the proper payroll tax filings (like 941s and W-2s).

What counts as a “reasonable salary”?

There’s no fixed number, but the IRS expects your salary to reflect what someone in your position would reasonably earn. We’ll help you calculate a wage that meets IRS guidelines and minimizes unnecessary payroll taxes.

Can I still take distributions?

Yes—after paying yourself a reasonable salary, you can take distributions from your remaining profits. This structure allows you to reduce self-employment tax while staying compliant.

What taxes do I still need to pay as an S-Corp owner?

You may still owe federal and state income taxes and likely need to make quarterly estimated payments based on your total taxable income (wages + distributions). We calculate and provide vouchers for these as part of quarterly planning.

Do I still need to make estimated tax payments?

Yes. Even with payroll, distributions and other income sources may create a remaining tax liability. We help calculate your quarterly payments to avoid underpayment penalties.

What happens if I haven’t been running payroll?

You’re not alone, and we can help. We’ll walk through options to get back on track and bring your filings current. In some cases, reasonable catch-up payroll can be run mid-year if necessary.

Can my S-Corp contribute to a retirement plan?

Yes. Your S-Corp can contribute to retirement plans like a Solo 401(k) or SEP IRA, often with tax benefits. Contributions are typically based on your W-2 wages, so planning your compensation strategically is key.

How do I make the S-Corp election?

You must file Form 2553 with the IRS—generally within 75 days of forming your entity or the start of the tax year. We can help you file and ensure it’s done correctly.

If you still have questions, submit your information below and we will schedule a time to consult with you.