Today TaxMama® hears from ASquare in the TaxQuips Forum with this question. “I work as a full time employee for a company on W2. I own S-CORP that i get income for the services provided in my free time. Do I need to run the payroll for that money earned on S-CORP or can I claim it as distribution at the end of the year?”
Dear ASquare,
This is a very common issue that people really should think about before forming S corps or LLCs – but often don’t consider.
Hmmm…is your S Corporation showing a profit?
If so, you need to be on payroll if you want to avoid an audit.
These days, the IRS is not wasting time on unprofitable audits.
They are focusing their energy on audits they know will generate revenue.
And when it comes to profitable S corporations, the IRS knows that the probability of generating additional taxes is 100%.
So, in short, yes, if you want an S Corp – run it properly.
If you don’t want to bother with the inconvenient technicalities, dissolve the S Corp and run a sole proprietorship. Get business liability insurance if you’re concerned about lawsuits.
And remember, you can find answers to all kinds of questions about S Corporations and other tax and business issues, free. Where? Where else? At www.TaxMama.com.
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