Question

Can my 1120s company skip compensating officers/shareholders?

Forum|Forum|5 years ago
March 13, 2021
1 reply
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Started this company in 2019 and we were hoping to make money in 2020 but COVID-19 happened and our new business suffered. We earned less $60 in 2020 and I don't want to go through the hassles of setting up withholding tax accounts and doing payroll for just that amount so I'm thinking not compensating my husband and I who are the owners/shareholders/officers and we won't distribute dividends also for this year. Since we're not getting paid salary or receive distributions, will this be ok with the IRS?

TurboTax Business Windows

T

ToddL99

Yes, you can "skip" compensating officers/shareholder of your S-Corp.

The requirement to pay "reasonable compensation" depends on the facts and circumstances surrounding your corporation. If the company did not make any money and the officers/shareholders did not receive any amounts of money or property from the company, then "reasonable compensation" can equal $0.

The IRS Reasonable Compensation rules require:

"S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.