My S-Corp had a slow year. Do I still have to pay myself a salary?
Short answer
You generally need a reasonable salary when you take money out of your S-Corp for your work, but if the business isn't profitable and you aren't taking distributions, lowering or pausing payroll for a while can make sense.
Otavio Mayole, Co-founder, DeCypher FinancialsUpdated
What the IRS watches for is an owner taking distributions with no salary. If there's no profit to distribute, the picture is different.
Options we look at in a slow year:
- Lower the salary to match what the business can support.
- Pause payroll for a period, if you're not taking money out.
- Keep reimbursing your home office and car through your accountable plan.
- Keep filing payroll reports, even if they show zero.
Watch out for transfers. Money you move from the business to yourself while payroll is paused still counts as a distribution, and it can create tax if it's more than your basis.
If slow years keep repeating, ask whether the S-Corp still pays for itself. If you end the election, you generally have to wait several years to elect again, so decide carefully.