We know payroll can seem daunting, especially when you're doing it for the first time, so we've put together a comprehensive video that walks you through the entire process on your Collective Dashboard. Think of it as a must-watch primer that will equip you with the knowledge to handle payroll setup confidently.
Understanding Reasonable Compensation
One of the most common questions we get from new S Corp members is about "reasonable compensation." How much should you pay yourself? The IRS requires that S Corp owners receive a salary that reflects what similar jobs in the market pay. This is known as reasonable compensation. The Collective Dashboard will guide you through setting up your salary before you run your first payroll.
How to select a reasonable compensation
Educate Yourself: Start with our articles that offer guidance on how to determine a reasonable salary for yourself. These resources are tailored to help you understand the nuances of reasonable compensation within the context of an S Corp.
Set an Initial Amount: If you’re unsure, choose a salary that seems fair compared to what others in similar positions are earning. Don’t worry if it’s not perfect right away.
Review with Your Onboarding Accountant: During your setup, you’ll enter your proposed salary. Your Onboarding Accountant will review this with you and can assist in adjusting the amount if necessary to ensure it meets the IRS guidelines.
Shareholder Distributions
It’s important to note that your salary as an S Corp owner isn't the only way you can receive money from your business. Shareholder distributions are another key component of your total compensation. These are typically taken from the profits of the business and are not subject to payroll taxes, which is why setting the right salary is crucial.
Need Help or Have Questions?
Setting up payroll is a big step, and it's okay to have questions! If there’s anything you’re unsure about or if you encounter issues not covered in the video, don’t hesitate to reach out at [email protected].
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.