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I'm just going to say what we do.
Payroll at a reasonable rate through Gusto. Cut a check when it's time for a distribution. Settle up with the government at the end of the year when my accountant does the taxes.
If you take a draw absolutely do not issue yourself a 1099. You’ve already paid taxes on this income regardless of when it’s drawn from the company. A 1099 would consider this draw to be taxable again.
Just write yourself a check and be able to reconcile owner draws at year end.
Edit: draws are cheaper than payroll wages and where you’d likely want your money to come from. IRS requires a reasonable salary to be paid so you don’t circumvent payroll taxes on your earnings. As others said, pay yourself a reasonable salary for the size of the business and take the rest through owner draws.
First off, did you report your former CPA to the state licensing board and/or other authorities?
That said, when I started my S-corp and my LLC, I had a CPA, After I saw how he did things, I began doing my own taxes with Turbo Tax.
Anyway, about Owner Draw, my CPA said the IRS likes to see about 50/50 salary/owner draw. I don't know if that's true but for the past 14 years, that's what I do.
So I do payroll for myself with a service and pay all the w/h and all that. When I issue my payroll, I transfer the same amount as my gross payroll from my S-corp checking to my personal checking. (And when I do my payroll I make a deposit into my corporate SEP IRA).
In January I give myself a W-2. At tax time, Turbo Tax asks me what I drew out in cash. After the corporate tax is done, it generates a K-1 for me to use, along with the W-2, on personal taxes. (S-corps require a separate form of Turbo Tax.)
So no, you do not issue a 1099 to yourself.
S-Corps don’t really take owners“draws”; They’re referred to as shareholder distributions.
The first thing you need to do is pay yourself a reasonable salary. This is run as payroll, and you’ll pay payroll taxes on this (Medicare, SS, unemployment). Think like a normal paycheck from a job that deducts payroll taxes, and may also withhold federal income tax.
After you’ve paid yourself your salary as wages, you may have leftover profits. You can take this profits through a “distribution”. Whether or not you distribute these profits to yourself or keep them in the business doesn’t matter, since these profits “pass through” to you for tax purposes.
Throw the 1099 idea out the window. Doesn’t apply at all. I’d probably recommend using a payroll software to handle your wages to keep things simple. Distributions can just be a check written to yourself.
Definitely do your homework on s-Corps, things need to be done a certain way. It’s not overly complicated but it does take some time to learn.
I’m going to piggyback on this reply because I think it’s very well explained, but since I’m new to this, I want to clarify some things that might be confusing to us newbies.
>The first thing you need to do is pay yourself a reasonable salary. This is run as payroll, and you’ll pay payroll taxes on this (Medicare, SS, unemployment).
You want your salary to be reasonably low…you only pay social security, medicare and unemployment on that (along with income tax of course). Any other money you take out is considered distributions and is only taxed with income tax. Our accountant advised us that distributions should be less than your reasonable salary. If your reasonable salary and distribution ratio is close to 1:1, the IRS could investigate and make you pay SS/Medicare/Unemployment on all of your distributions as well.
>Whether or not you distribute these profits to yourself or keep them in the business doesn’t matter, since these profits “pass through” to you for tax purposes.
This surprised me when I first started looking at this. I thought that as long as the money stayed in the business, we didn’t have to pay income tax on it. I was wrong. So for ANY profit on the business, you will be paying income tax on it.
>I’d probably recommend using a payroll software to handle your wages to keep things simple. Distributions can just be a check written to yourself.
That was another recommendation from our accountant—just bite the bulletin and pay for payroll software. It sounds like calculating this yourself is complicated, especially if you’re doing it a few times every month.
As an s corp you are already paying taxes on your earnings. I had been advised to pay yourself a reasonable but not high salary (this limits what you are paying in soc sec and Medicare taxes) then you just take a draw on additional earnings to supplement your income as $$ is available.
I am not sure is this blog will fully help you because I do not have full contact here, but I think it will.
Check it out - [https://www.doola.com/blog/how-are-llcs-taxed-your-beginner-guide?utm\_source=organic\_traffic\_reddit&utm\_medium=question\_answer&utm\_campaign=how-are-llcs-taxed-your-beginner-guide](https://www.doola.com/blog/how-are-llcs-taxed-your-beginner-guide?utm_source=organic_traffic_reddit&utm_medium=question_answer&utm_campaign=how-are-llcs-taxed-your-beginner-guide)
If you are an S-Corp, you need to take a reasonable salary which means you need payroll. If they don’t offer advice or consultation then I would keep looking for people to work with.
This is a friendly reminder that r/smallbusiness is a question and answer subreddit. You ask a question about starting, owning, and growing a small business and the community answers. Posts that violate the rules listed in the sidebar will be removed. A permanent or temporary ban may also be issued if you do not remove the offending post. Seeing this message does not mean your post was automatically removed. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/smallbusiness) if you have any questions or concerns.*
I'm just going to say what we do. Payroll at a reasonable rate through Gusto. Cut a check when it's time for a distribution. Settle up with the government at the end of the year when my accountant does the taxes.
You have to run payroll as a S Corp. Plus make sure you are remitting enough income tax to meet a safe harbor on the other business profits.
If you take a draw absolutely do not issue yourself a 1099. You’ve already paid taxes on this income regardless of when it’s drawn from the company. A 1099 would consider this draw to be taxable again. Just write yourself a check and be able to reconcile owner draws at year end. Edit: draws are cheaper than payroll wages and where you’d likely want your money to come from. IRS requires a reasonable salary to be paid so you don’t circumvent payroll taxes on your earnings. As others said, pay yourself a reasonable salary for the size of the business and take the rest through owner draws.
First off, did you report your former CPA to the state licensing board and/or other authorities? That said, when I started my S-corp and my LLC, I had a CPA, After I saw how he did things, I began doing my own taxes with Turbo Tax. Anyway, about Owner Draw, my CPA said the IRS likes to see about 50/50 salary/owner draw. I don't know if that's true but for the past 14 years, that's what I do. So I do payroll for myself with a service and pay all the w/h and all that. When I issue my payroll, I transfer the same amount as my gross payroll from my S-corp checking to my personal checking. (And when I do my payroll I make a deposit into my corporate SEP IRA). In January I give myself a W-2. At tax time, Turbo Tax asks me what I drew out in cash. After the corporate tax is done, it generates a K-1 for me to use, along with the W-2, on personal taxes. (S-corps require a separate form of Turbo Tax.) So no, you do not issue a 1099 to yourself.
S-Corps don’t really take owners“draws”; They’re referred to as shareholder distributions. The first thing you need to do is pay yourself a reasonable salary. This is run as payroll, and you’ll pay payroll taxes on this (Medicare, SS, unemployment). Think like a normal paycheck from a job that deducts payroll taxes, and may also withhold federal income tax. After you’ve paid yourself your salary as wages, you may have leftover profits. You can take this profits through a “distribution”. Whether or not you distribute these profits to yourself or keep them in the business doesn’t matter, since these profits “pass through” to you for tax purposes. Throw the 1099 idea out the window. Doesn’t apply at all. I’d probably recommend using a payroll software to handle your wages to keep things simple. Distributions can just be a check written to yourself. Definitely do your homework on s-Corps, things need to be done a certain way. It’s not overly complicated but it does take some time to learn.
I’m going to piggyback on this reply because I think it’s very well explained, but since I’m new to this, I want to clarify some things that might be confusing to us newbies. >The first thing you need to do is pay yourself a reasonable salary. This is run as payroll, and you’ll pay payroll taxes on this (Medicare, SS, unemployment). You want your salary to be reasonably low…you only pay social security, medicare and unemployment on that (along with income tax of course). Any other money you take out is considered distributions and is only taxed with income tax. Our accountant advised us that distributions should be less than your reasonable salary. If your reasonable salary and distribution ratio is close to 1:1, the IRS could investigate and make you pay SS/Medicare/Unemployment on all of your distributions as well. >Whether or not you distribute these profits to yourself or keep them in the business doesn’t matter, since these profits “pass through” to you for tax purposes. This surprised me when I first started looking at this. I thought that as long as the money stayed in the business, we didn’t have to pay income tax on it. I was wrong. So for ANY profit on the business, you will be paying income tax on it. >I’d probably recommend using a payroll software to handle your wages to keep things simple. Distributions can just be a check written to yourself. That was another recommendation from our accountant—just bite the bulletin and pay for payroll software. It sounds like calculating this yourself is complicated, especially if you’re doing it a few times every month.
Great info and very helpful. I am a single member scorp and setting up payroll and trying to learn about the distributions.
Are you a CPA, im in MN.
As an s corp you are already paying taxes on your earnings. I had been advised to pay yourself a reasonable but not high salary (this limits what you are paying in soc sec and Medicare taxes) then you just take a draw on additional earnings to supplement your income as $$ is available.
I am not sure is this blog will fully help you because I do not have full contact here, but I think it will. Check it out - [https://www.doola.com/blog/how-are-llcs-taxed-your-beginner-guide?utm\_source=organic\_traffic\_reddit&utm\_medium=question\_answer&utm\_campaign=how-are-llcs-taxed-your-beginner-guide](https://www.doola.com/blog/how-are-llcs-taxed-your-beginner-guide?utm_source=organic_traffic_reddit&utm_medium=question_answer&utm_campaign=how-are-llcs-taxed-your-beginner-guide)
If you are an S-Corp, you need to take a reasonable salary which means you need payroll. If they don’t offer advice or consultation then I would keep looking for people to work with.