How does an S Corp have to pay it's owners or shareholders?
Is there a requirement?
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Listen to the audio
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In this audio snippet, you'll hear about:
- There is no requirement. A Corporation doesn't have to pay anything at all
- If it has income, it will be taxed. If there is no income, there is nothing to be distributed
Audio Transcript
Travis:
How does an S–Corp have to pay its owners or shareholders and is there a requirement?
Yosef:
The S–Corporation doesn't have to pay anybody anything.
Travis:
OK.
Yosef:
The reason for that is simple. If the corporation has income, it will
be taxed in the same period directly to the shareholders. If it doesn't
have income, there is no money to distribute.
Travis:
OK. Wow, that is almost exactly what my next question is but I will let you finish up before I pose it to you.
Yosef:
Sometimes the S–Corporation will have officers that need to get a
salary in order to live. Whatever was negotiated between the
shareholders, the directors of the corporation and the officers, in the
end, that will prevail.
A
lot of the financial advisors don't realize this, but there is a thing
called an accumulated earnings tax in traditional C–Corporations,
whereby a C–Corporation is expected to distribute its earnings that it
does not need to continue to running its business to its shareholders
in a timely manner. If the C–Corporation does not do that, they will be
subject to a whole separate set of taxes. Those taxes do not exist
within the S–Corporation arena, because the S–Corporation shareholders
are paying tax right away anyway.
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