Free Continuing Education for Small Business
1. Does owner have a choice of paying themelves a salary(W2) or issuing a 1099 misc and reporting on sch C?
2. What percentage of profits can on allocate to ordinary income the first year as SubS owner?
1. If you are working for your S Corporation, you are required to pay yourself a reasonable salary. A 1099 payment is not salary. So you would not be meeting the technical requirements, unless you argue that you are not working for your Corporation (you are working for your Sole proprietorship or LLC that is contracted to provide services to your S Corp). We often use this 1099 payments or management fee when an S Corporation owner comes to us well after the tax year is over and filing payroll returns and paying payroll tax would result in significant penalties. The 1099 does accomplish the governments goal of collecting social security and medicare tax (through self employment tax rather than employment taxes). Still, the best solution is to pay yourself a reasonable salary, file the required payroll returns and deposit the required payroll taxes.
2. There is no formula for this. You must pay yourself a reasonable salary. You must consider all the facts and circumstances. What would it cost to pay someone else to do what you do for your company?