Tax Guru-Ker$tetter Letter
Sunday, October 26, 2008
S Corp Payments
Subject: S corp'sHi I just found your site and read about S vs C Corp's. We have been an S Corp for years. Some questions I have is: money taken out by shareholder ( my wife and I) should that be ledgered under personal income or shareholder loans? Is that money taxable? My CPA says it is not taxable. Why would I ever pay myself in wage form if this is the case. I see as our profits get up to 65,000 or more maybe we should start a C Corp. How so you smooth out the money in a C Corp. I don't understand. Maybe I should get a new CPA?Thanks
If you've been operating an S corp for any period of time and your professional tax advisor hasn't explained to you all of the details of how cash distributions are treated, it does sound like s/he has dropped the ball. That all should have been explained to you prior to your even setting up the S corp.
Likewise, if your professional tax advisor isn't aware of how to effectively utilize a C corp to smooth out your taxable income, it is time to find someone who understands this very basic tool of tax planning.