Can my S Corp have no employee?

jwchen · #1 (**permalink**) 01-19-2011, 02:21 PM

Hi everyone,

My wife and I have an LLC, we are going to convert it to S corp this year.
We both have other jobs and W-2's, this S corp is set up for selling things on internet.

Since both of us have other jobs, can this S corp set up with no employee?

If we must have an employee, say, me, can this S corp pay me only part time salary because that's how I manage this S corp, as a part time job to my other job. Will IRS be OK with this?

Thank you in advance!

TaxGuru · #2 (**permalink**) 01-20-2011, 01:16 AM

Well, you should only take a salary provided you are generating a profit. There is no point in taking a salary if there is no income! Now, if you are generating a profit, then clearly, you should be taking some reasonable salary.

So, my question to you would be as follows, "How much profit are you expecting in 2011?" Based on this amount of profit, you should take a salary that would be a function of your profits! Thus, if your profits are say $10,000 for the tax year 2011, then I would certainly consider taking a Salary of around $500-600 per month at a minimum to avoid any IRS scrutiny.

Whether you consider yourself part time or not is not a critical issue, the important fact is that the salary must be reasonable in relationship to the profits earned in the Corporation.

jwchen · #3 (**permalink**) 01-20-2011, 02:46 AM

Quote:

Originally Posted by TaxGuru

Thus, if your profits are say $10,000 for the tax year 2011, then I would certainly consider taking a Salary of around $500-600 per month at a minimum to avoid any IRS scrutiny.

Thank you for the answer.

I expect the profit could be around $80,000.
The work I do is just like a clerk.

Case 1:
I pay myself $30,000 for salary.

Case 2:
Me and my wife are both employees and we share the work load.
We pay ourselves $15,000 each for salary.

I have a feeling that case 2 is not reasonable for IRS?