You probably know that tax law requires your S corporation to pay you, the owner-employee, a salary before you take a share of the profits. And you can’t just pay yourself a willy-nilly minimal amount.
The IRS requires you to pay a fair salary known as reasonable compensation, as we discussed in How S Corporation Owners Can Cut Taxes by Keeping a Lid on Their Salaries.
But what about in a year when your corporation has a net loss? You definitely don’t have to pay yourself any wages, right?
Think again! Yes, it sounds crazy. Your S corporation can have a net loss for the year and do something that causes a salary.
And if the IRS and/or the courts find that your S corporation did not pay you reasonable compensation, you can experience a new surprise salary, payroll taxes, and penalties. This will make your bad year worse.
This article will help you plan your S corporation cash moves so you can avoid the unexpected salary. ... Log in to view full article.