Monday, January 16, 2012
How Can I get Money Out of My “S” Corporation?
There are a lot of different ways to get money out of your “S” corporation. Most “S” corporation shareholders also act as an employee, director, landlord, contractor, lender or creditor of their corporation. And you have every right to be paid for the products or services you provide to the corporation in such other role. Most “S” corporation shareholders receive payments in the form of W-2 compensation and “S” corporation distributions. But sometimes other payment forms make sense.
Rather than have your “S” corporation acquire real estate or office equipment, you might consider setting up an LLC and renting the real estate and equipment to the “S” corporation. You also might consider having your spouse or children be the owners of the LLC. Having a separate LLC owned by your spouse or children rent the property to the “S” corporation gives you the ability to get money out of the “S” corporation and get it to your spouse or children who might be in a lower tax bracket and who are not liable for debts and obligations of you or your “S” corporation.
If your “S” corporation needs monies for expansion, the owners could all contribute the necessary monies. But another possibility is to structure the advances as loans. This is a good solution when not all the owners can or want to make an advance or contribution to the corporation. It also provides a way to get your money back out of the corporation in the future with interest. And if you file a financing statement to record the loan, you can put yourself ahead of unsecured creditors of the corporation.
If you are serving as a director of the corporation, it is possible to pay yourself (and other directors) a directors fee. Unlike “S” distributions, the directors fee does not need to be pro rata among the shareholders based on ownership. And unlike W-2 compensation, the directors fee is a 1099 type payment and not subject to payroll taxes.
Bottom line is that there are many ways to skin a cat. If you wear a lot of different hats in connection with your “S” corporation, it is worth exploring how you are getting paid. You might find that different payment formats reduce your overall tax burden, permit you to protect assets from creditors, reduce your risk of non-compliance with the “S” corporation single class of stock rules or give you an opportunity to shift some income to family members in lower tax brackets.
Please call or email if you want to know more about how to get money out of your “S” corporation. Jsenney@pselaw.com or 937-223-1130.
AND ONE MORE THING. if you have any questions about whether your workers can or should be treated as employees or independent contractors. Jsenney@pselaw.com or 937-223-1130.
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