S Corporation - compensation of officers?

Laveta Fathy: Officers of C and S corporation are supposed to be paid reasonable wages for their time and effort in managing the corporation. When the corporation is making losses, it is common for the major owners not to take salaries. When the corporation makes a profit, then unless reasonable wages are paid, the IRS can impute wages to the officers in order to ensure that the corporation is not used to avoid paying payroll taxes. In your situation, if you know what would have been reasonable wages to pay you and your friend, you could have the corporation treat you as contractors and pay you the "wages" due to each of you. You would report your receipts from the corporation on a schedule C and pay the self-employment tax on it with your personal tax return. In 2009, you could then start paying the officers wages.Richard KThis advice was based on my understanding of the tax law in effect at the time it was written as it applies to the facts provided by you. See my! profile for more details....Show more