My S Corporations income is not very easily determinable due to the nature of my business. Hence it is difficult to determine the cashflow/profits on a monthly basis.

How can I establish a reasonable salary? I can't make a payroll on a regular basis at a fixed amount when there is no cash in the bank!

Please provide me with a strategy so that I would not bring on the wrath of the IRS!

Thanks..

This is an interesting question, and many corporations have income that is not easily predictable. Yet, at the end of the tax year, the Corporation has somehow made a substantial profit and and had very little salary!

So, the IRS would naturally not see the fluctuations of income, rather a annual year end revenue number. So, clearly, the IRS would be interested in recharacterizing some of this pass-through income as subject to payroll taxes.

The solution is that you should be consulting with a CPA who can provide you with financial projections and determine the timing of future profits and provide you with a guideline as to when the timing of the cashflow would be highest. It is during periods of highest cashflow, that additional salaries should be taken.

There is nothing wrong in taking a bigger salary in the 4th quarter that better reflects timing of the corporations profits. No matter what, you should take a salary that is reasonable and mirrors the year end profit of the S corporations and avoid the temptation of having substantially all passthrough income.!

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