Originally Posted by ideanist-m
Thanks! I guess IRS should not have any issues with $0 wages in case of a c-corp that does not pay dividents and has no profits (in contrast to s-corp)
If a c-corp decides to pay officers $0 until the company becomes profitable, and as long as it pays no dividends, then I guess there is no need to file forms 940, 941 or W2, making things much easier. Or is it better and safer to just file anyway showing $0 wages and tax liabilty?
Once an owner forms a corp, there is no law requiring it to hire employees or pay salaries. If the company is conducting business, however, it is the opinion of the IRS that someone must be acting on the corp's behalf. In that case, any money the person receives from the corp will likely be classified as salary, whether or not the owners intended the distribution to be viewed that way. some EAs or CPAs suggest officers active in operating a corp that is experiencing net operating losses should still pay themselves a "reasonable" wage. But I believe most new corps losing money pay no officer salary. Other tax experts suggest that as long as the corp isn't paying money out to shareholders as employment-tax-free distributions, salaries do not need to be paid. This seems to agree with what the IRS says; for example, The IRS writes: A Corp must pay reasonable compensation (subject to employment taxes) to shareholder-employee(s) in return for the services that the employee provides to the corporation, before a non-wage distributions may be made to that shareholder-employee . This issue has been identified as an area of non-compliance and will receive greater scrutiny in the foreseeable future. From a tax perspective, however, the choice matters: if you take compensation, you are subject to payroll taxes at the corporate and individual level, and will pay tax on the compensation income at an ordinary rate as high as 39.6%. If, however, you take a dividend, there are no payroll taxes, and your tax rate is generally capped at 23.8%.