Finally, some words of advice on your new S-Corp. The fastest way to get audited as an S-Corp is to file an 1120S with no amount showing on Form 1120S Line 7 "Compensation of Officers." It is assumed by the IRS that no one works for free, and so the
IRS has said over and over again that officers of the corporation must receive wages (reported on line 7). As an owner-employee of the S-Corp, you will have to pay yourself a salary, and pay payroll taxes on your salary, even if the S-Corp loses money. You don't have to pay yourself a high salary, but it must be a "reasonable amount" according to the IRS. Reasonableness can be interpreted in different ways. I would keep track of the number of hours you work for your S-Corp, and then figure out a "reasonable" salary to pay yourself based on the amount of time you spend. (For more tips on calculating a reasonable salary, read the article "
Reasonable Compensation" at Qbalance.com.)
If your S-Corp is losing money (especially in the first few years of operation), your losses will be exaggerated by the salary you have to pay yourself. Thus, if your economic losses (not counting your salary) is $10,000, but you need to pay yourself a "reasonable" salary of $10,000, then your tax loss will be at least $20,765 ($10,000 economic loss + $10,000 salary + $765 in employer-paid payroll taxes). In an S-Corp, your tax losses will always be greater than your economic losses, and your tax profits will always be less than your economic profits! (Talk about having your cake and eating it too!)
OK, enough already! Go out there and conquer the world, resting assured that having your own corporation is the best way to minimize your overall tax situation.
Cheers,
William
