Cleanly getting money out of an S-corp with no payroll

October 19, 2018 10:58 AM

I am the sole shareholder of a small business set up as an S-corporation. I've been operating the business for two years, but the business hasn't been profitable enough to pay me a salary (it's been operating as an employee-less corporation.) I've decided to close the business and need to withdraw money from the business without doing anything that looks sketchy to the various taxing bodies. Details inside.

My biz accountant says I can just take a shareholder distribution, but if I do that, there will be nothing withheld for FICA, SS, etc. I found an earlier AskMe which brought up the issue of "reasonable compensation." (i.e. you have to pay yourself a fair salary first before paying yourself as a shareholder.)
The corporation will likely wind up with a bank balance in the $15K range. Given that this is a relatively small amount of money (I don't think anyone would consider 15K reasonable compensation for two years of full time skilled work) are there any special considerations? Last year the business showed a paper profit of 9K someodd which was taxed as pass-through income.

posted by Larry David Syndrome to Work & Money (2 answers total)

I would trust your business accountant over random advice from MetaFilter. There is a question for me of whether you might have already paid taxes on some of the 15K as part of your paper profit - no need to pay twice. Also ask about whether you need to make a quarterly tax payment (basically that is what the withholding does - makes sure money gets to the tax authorities on a timely basis) Again, talk to your accountant. As long as you are filing the right forms and paying taxes appropriately, you are fine.
posted by metahawk at 11:23 AM on October 19, 2018 [6 favorites]

Best answer: You should be able to withdraw that money at will, accounting for it as a "distribution of net income" and be done with it. Yes, the IRS in previous years has been pissy about S-corp owners withdrawing money as a distribution and not paying FICA and SS on it but you're closing the business, not trying to bypass paying yourself a salary.

I just recently closed my S-corp, after about a year without salary, and just took whatever money was left in the account. This was done at my accountant's suggestion and assurance that it is done all the time.

However, before you withdraw all the money, you might want to see what you can pay out to yourself as reimbursement for expenses (accountant fees, marketing, whatever you've got) to lessen the amount that will flow through to your personal taxes.
posted by DrGail at 11:26 AM on October 19, 2018 [7 favorites]