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Old 04-16-2017, 10:10 PM
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When to file Forms 940 and 941 for the first time

For federal tax law per IRS: "an officer who performs no services or only minor services, and neither receives nor is entitled to receive any pay, isn't considered an employee."

If a C-Corp. adopts a resolution in the organizing meeting that the sole Officer (the owner) shall not receive any salary until the corporation turns a profit, the officer is not entitled to receive any pay.

In such a case, the business might not have to file forms 940 and 941 until the officer starts performing more than only minor services.

What is the threshold for "minor services" stop being minor in the eyes of the IRS?

Is it possible to argue that services performed by the owner-officer continue to be minor when the C-Corp continues to have no other employees, does not use any external contractors, but after the corporation actually "starts operating" (i.e. open for business, for example ready to take payments or donations for internet content or a newsletter?)



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Old 04-17-2017, 12:16 AM
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What is the threshold for "minor services" stop being minor in the eyes of the IRS?=========> I guess there is no any specific accurate definition of minor svc;in my opinion,one way to determine a reasonable salary for corporate officers is to look at what other companies of similar size and type pay for such services. Check on websites like The Ladders and Salary.com for comparable positions, or engage the services of a compensation consultant. Each year, when you complete the income tax forms for your corpor S corp, you must report corporate officer salaries if the corporation's total receipts are $500k or more. The IRS guidelines suggest you look at the following factors to determine "reasonable" salaries as a corp officer:Training and experience, Duties and responsibilitiesTime and effort devoted to the business,Dividend history or etc.


Is it possible to argue that services performed by the owner-officer continue to be minor when the C-Corp continues to have no other employees, does not use any external contractors, but after the corporation actually "starts operating" (i.e. open for business, for example ready to take payments or donations for internet content or a newsletter?)========>>I guess it is possible however, negotiable with the IRS



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Old 04-17-2017, 02:19 AM
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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?



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Old 04-17-2017, 02:45 AM
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Originally Posted by ideanist-m View Post
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%.



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