Accounting & Bookkeeping & Small Business Forum

[ggrant3]

I recently started a s-corporation and I can't seem to find a straight forward answer on what to do and how to calculate my payroll taxes. I am the only person involved in the company. But from what I understand I need to deposit (to the IRS) an "estimated" amount of what I think I owe each quarter.

Where can I find out what I owe (per check, month, etc...)

I know I can pay online with the EFTPS, but I have no idea how much I should be depositing and if there are any specific forms that need to be filled out.

BTW, I use Qbooks (if it matters)

[Richard Noot]

ggrant3 wrote: I recently started a s-corporation and I can't seem to find a straight forward answer on what to do and how to calculate my payroll taxes. I am the only person involved in the company. But from what I understand I need to deposit (to the IRS) an "estimated" amount of what I think I owe each quarter.

Where can I find out what I owe (per check, month, etc...)

I know I can pay online with the EFTPS, but I have no idea how much I should be depositing and if there are any specific forms that need to be filled out.

BTW, I use Qbooks (if it matters) You are talking about two different areas here. Estimated taxes are paid and reported thru your 1040 tax form and also thru your payroll However your FICA taxes are paid thru your payroll. The easiest way to do this is by giving yourself a reasonable salary and based on this salary federal income tax and FICa taxes would be withheld from your pay. Every qtr these taxes along with your corp share of FICA taxes would be efiled to the feds and your state.
To determine what will be probably due to the feds and the state on your 1040 form you can fill out the 1040ES worksheet. You can then send any balance that you estimate that will be due on the 15th of apr 15th june 15th sept and the 15th of january (the yr following) THIS PROCEDURE ASSUMES THAT YOU HAVE ADDITIONAL INCOME THAT IS TAXABLE IN ADDITION TO THE WAGES PAYABLE BY THE CORP. If the wages are the ONLY income that is taxable, then all of the necessay taxes can be taken care of thru the payroll withholding OR estimated taxes (1040ES). instead of using both withholding and estimated payments.

[Richard Noot]

Richard Noot wrote: ggrant3 wrote: I recently started a s-corporation and I can't seem to find a straight forward answer on what to do and how to calculate my payroll taxes. I am the only person involved in the company. But from what I understand I need to deposit (to the IRS) an "estimated" amount of what I think I owe each quarter.

Where can I find out what I owe (per check, month, etc...)

I know I can pay online with the EFTPS, but I have no idea how much I should be depositing and if there are any specific forms that need to be filled out.

BTW, I use Qbooks (if it matters) You are talking about two different areas here. Estimated taxes are paid and reported thru your 1040 tax form and also thru your payroll However your FICA taxes are paid thru your payroll. The easiest way to do this is by giving yourself a reasonable salary and based on this salary federal income tax and FICa taxes would be withheld from your pay. Every qtr these taxes along with your corp share of FICA taxes would be efiled to the feds and your state.
To determine what will be probably due to the feds and the state on your 1040 form you can fill out the 1040ES worksheet. You can then send any balance that you estimate that will be due on the 15th of apr 15th june 15th sept and the 15th of january (the yr following) THIS PROCEDURE ASSUMES THAT YOU HAVE ADDITIONAL INCOME THAT IS TAXABLE IN ADDITION TO THE WAGES PAYABLE BY THE CORP. If the wages are the ONLY income that is taxable, then all of the necessay taxes can be taken care of thru the payroll withholding OR estimated taxes (1040ES). instead of using both withholding and estimated payments.


After posting I realize I need to clarify. The last statement saying "all of the necessary taxes can be taken care of" ...... is not entirely true. FICA (social security) can be withheld and paid thru payroll tax procedures only. Also I did not mention federal and state unemployment which can be pd thru payroll tax only.

[ggrant3]

Okay I did not understand what you posted

I was talking about payroll taxes for me. I do not have any employees so I am only concerned about myself currently. I just don't understand how to submit FICA and Social Security payments (also are those the only two?) on my behalf, we do not have a state income tax here either.

What "Two Different Areas" are you referring to? Did you mean corporate taxes on profits from the corporation? Because I have an s-corporation so whatever profit or loss in generated from the s-corporation gets transferred to my personal income at the end of the year.

[Richard Noot]

ggrant3 wrote: Okay I did not understand what you posted

I was talking about payroll taxes for me. I do not have any employees so I am only concerned about myself currently. I just don't understand how to submit FICA and Social Security payments (also are those the only two?) on my behalf, we do not have a state income tax here either.

What "Two Different Areas" are you referring to? Did you mean corporate taxes on profits from the corporation? Because I have an s-corporation so whatever profit or loss in generated from the s-corporation gets transferred to my personal income at the end of the year.

you submit your fica and unemployment thru your payroll tax anf your employee withholding thru either your payroll or your 1040

[ggrant3]

What are the benefits and or drawbacks of setting myself up as an employee versus taking an owners draw in regards to payroll?

This is all related to an S-corporation (if it matters at all)

[Richard Noot]

ggrant3 wrote: What are the benefits and or drawbacks of setting myself up as an employee versus taking an owners draw in regards to payroll?

This is all related to an S-corporation (if it matters at all) You can NOT take a draw . That is unless you want to run your business from a jail cell

[irsfixer]

Richard Noot wrote: ggrant3 wrote: What are the benefits and or drawbacks of setting myself up as an employee versus taking an owners draw in regards to payroll?

This is all related to an S-corporation (if it matters at all) You can NOT take a draw . That is unless you want to run your business from a jail cell

Of course you can take a draw. In a Sub S – a draw is called a distribution. However, it is not deductible and is no substitute for a reasonable salary. Let me try to explain so that you will not be confused as above.

As I think you are aware, a Sub S is a pass through entity. This means it is not taxed per se. The net income and certain tax preference items are passed through to the owner and tax is paid at the individual/owner level. You are taxed on the net income regardless of how much you take out of the company either in salary or distributions.

As an owner/employee of the company, you are required to pay yourself a salary. That salary must be reasonable for your position based on such things as title, duties, education, experience, etc. Your salary is treated just like any other employee. Federal and state taxes are withheld and must be reported on the quarterly payroll reports and deposited with the IRS. How often the deposits must be made depends on how much is accumulated thru the week, month or quarter. All this is explained in the IRS Circular E so I will not detail it.

Since you are also taxed on the net income of the company, you must make estimated tax payments thru the year. These payments are made quarterly using Form 1040-ES and are due 04/15/, 06/15, 09/15 and 01/15.

For example: Assume the company had net income before your salary of $150,000. You pay yourself a salary of $50,000 – leaving a net income after your salary of $100,000. You take draws (distributions) of $25,000 during the year. So how is it all taxed?

- You will receive a W-2 for the $50,000 and report it as wages on your return. FICA and Medicare will have already been paid on it by the company.
- The $100,000 income is reported to you on a Form K-1 and the income is listed on your Schedule E, which is attached to your Form 1040. You pay income tax on this – but not FICA/Medicare. Assuming the tax due on this $100,000 is estimated to be $28,000, you should have made four estimated tax payments of $7,000.
- The $25,000 draw (distribution) already has tax paid on it so it does not show up on your tax return. However, it does reduce your basis in the company.

It will not take long to figure out that distributions are better than salary since no FICA/Medicare is paid on it – only income tax. This is why the concept of “reasonable compensation” is important. If you take big distributions and little to no salary – the IRS will reclassify it and you will owe additional tax, penalties and interest on it. You will NOT go to jail.

[Richard Noot]

Very well put Mike. I agree with you except for one minor detail. A distribution is NOT the same as a draw. Distributions are legal, draws are considered theft and you will go to jail for stealing the corp funds.

[irsfixer]

Richard Noot wrote: Very well put Mike. I agree with you except for one minor detail. A distribution is NOT the same as a draw. Distributions are legal, draws are considered theft and you will go to jail for stealing the corp funds.

A draw is a withdrawal from the company by the owner for personal use. This is precisely what a distribution is. The draws can be charged to an account called "Owner Draw" and closed to Distributions at the end of the year - or charged to the distribution account directly. Draws are routine and, as long as they are not deducted on the tax return, perfectly right, holy and legal. There is no special ceremony for owners to get money out of the company - it is just routine. It is their money! Please refer back to my discussion on "Reasonable Compensation" for caveats.