Is My CPA Advising Me Correctly on Payroll? Navigating S-Corp Tax Requirements
As a business owner of an LLC in Utah for over five years, I recently decided to transition to an S-Corporation for tax benefits, guided by my CPA. While the S-Corp election paperwork has been filed, I am now facing uncertainty regarding the proper procedure for handling payroll.
The advice I received from my CPA left me puzzled. According to him, instead of setting up a formal payroll system for myself, I can allocate 20% of the business profits as a “reasonable wage.” This amount would then be taxed at the end of the year, while the remainder could be distributed without the usual payroll complexities.
However, my research suggests otherwise. It seems that as an owner-employee of an S-Corporation, I’m expected to draw a reasonable salary via an established payroll system, complete with W-2 forms and necessary tax withholdings. As the sole proprietor and employee, this responsibility falls squarely on my shoulders.
The dilemma I’m now facing is whether to proceed with tax filing based on my CPA’s guidance, or to err on the side of caution and seek a second professional opinion. The potential risks of non-compliance, such as penalties or audits, are weighing heavily on my mind. Would it be prudent to continue under my current CPA’s advisement, or should I consider a change to ensure the proper handling of my S-Corp payroll obligations?
Understanding the implications and seeking further insight could be crucial in avoiding any legal or financial missteps. Exploring alternatives or confirming compliance with another expert might be the peace of mind I need before proceeding with my tax filings.
