What percentage of earnings do you give yourself in salary and what percentage in dividends/disbursements (not sure the correct term)
is 55/45 asking for an audit?
is 55/45 asking for an audit?
For those of you with S-corps...
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According to my CPA with whom I've had this discussion at tax time each of the last 3 years - the IRS is ideally looking for a 50/50 split. No 55/45 isn't asking for an audit. From what I understand something like 20% salary / 80% distribution is though. Basically you save on SS tax when you skew the % toward distribution.
Of course ask your CPA / accountant though for further clarification.
Of course ask your CPA / accountant though for further clarification.
Our accountant said that you have to pay yourself a "reasonable" salary. So if you could hire someone to do your job, how much would you have to pay them? That's roughly the amount you should be paying yourself.
Talk to your account though.
Talk to your account though.
What if all your earnings are residual? I've only worked like 2 hours this year.
There is no perfect ratio. A large part of it depends on how much you made.
If you have $100,000 in profits then paying yourself a $55,000 salary is generally reasonable.
However if you had $1 million in profit than paying yourself a $550,000 salary is way too much.
I have a 50k salary, rest is disbursements. My account recommended i do a salary that is somewhat believable for my industry. 50k is what i made at my last real job, so i went with that...
