S-corp shareholder compensation - Spidell

S-corp shareholder compensation

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Message Board S-corp shareholder compensation

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    • #305237

      I have an s-corp with an apartment complex(residential rental real estate) with 3 shareholders.  One of the shareholders is involved on a part time or as needed basis as there is a management company.  What are the options the shareholders have in regards to distributions/salaries, as they are not active participants in the business as the rental property basically runs on its own via the property management company.

    • #305302
      Mike Giangrande

      If you have an S corporation shareholder who does not participate in the operation of the business, then there is no requirement to pay them a salary. They can take all of their compensation through distributions.

      The one shareholder who does participate, even if only partially, should be paid like any part-time employee and issued a W-2 at the end of the year.

    • #305432

      That’s good news, thank you!

      But can the shareholder that is not participating in operations take a salary instead of distributions?  The reason for this question is social security tax issue as the shareholder receiving distributions is paying no social security taxes on income from the s-corp.

    • #305458
      William Dewberry

      All distributions must be paid pro rata to ownership %

    • #305476

      Agree on the pro rata %, but can the shareholder not participating in the operations still take a salary on top of pro rata % distributions?

    • #305543
      Mark Bole

      can the shareholder not participating in the operations still take a salary

      No.  What services were rendered that would make a salary a legitimate business expense?

      You haven’t said so, but is sounds like client is trying to generate bogus earned income so they can accrue Soc Sec earnings for purpose of claiming future benefits?  Maybe I am reading too much between the lines.

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