My S-Corp is already set up. Was it done right, and do I need payroll?
Short answer
If you work in your S-Corp, you generally need to pay yourself a reasonable salary through payroll, and an S-Corp with no owner payroll is one of the most common problems we find.
Otavio Mayole, Co-founder, DeCypher FinancialsUpdated
The red flags we see most when we review S-Corp returns:
- No owner payroll. All money taken as draws or distributions, with no salary.
- Owner paid as a contractor. Paying yourself through a 1099 instead of payroll.
- An election that was never filed. The business files as an S-Corp, but the IRS never received or approved Form 2553, so penalties pile up.
- Mismatched EIN or name. The election or returns are filed under a number or name the IRS doesn't recognize.
- Income reported twice. S-Corp income also showing up on a personal Schedule C.
- Empty balance sheet or $0 distributions. It suggests the books behind the return weren't kept.
- Contractors with no 1099s. Large contract labor expenses with no 1099s filed.
- Home office with no accountable plan.
- A salary far higher than needed. Paying more payroll tax than necessary.
Most of these can be fixed. Depending on what we find, that can mean starting payroll, filing missing forms, amending returns, or in some cases filing past years as a sole proprietor and electing correctly going forward.
Send us your last business and personal returns, and we'll go through them on your second call.