How does an S- Corp work?

[Allen Trent]

Are there any rules on what % must be taken as salary or is it just “ reasonable “ ?

no set regs on reasonable salary, only suggested guidelines. you find out the rules after the fact in court if IRS determined you were being unreasonable. The hard part about insurance sales as you as the owner may be handling 1 role or many depending on the product lines. Paying yourself $25k salary if you gross net $250k after expenses with no employees probably wont fly. Tax Court Cases for Reasonable Salary - WCG CPAs (wcginc.com)

 

[Allen Trent]

this is not as helfpul for insurance agents/agencies as numerous other businesses.

depends on what liability you mean. If it is professional liability & the owner was the one being sued for E&O, I would agree. however, if it was a licensed staff/sub producer, or employee or a general liability slip & fall or an auto claim for employee driving, I believe having a corporation own the building & operate the business side would provide a much greater protection of personal assets than being a sole proprietor would.

1 person life only working from home might not get as much benefit from a corporation as a multi-line operation with 5 employees, building, personal vehicles used to conduct business like banking & property inspections

 

[marindependent]

1 person life only working from home might not get as much benefit from a corporation as a multi-line operation with 5 employees, building, personal vehicles used to conduct business like banking & property inspections

Agreed

 

[sman]

The good news is the average insurance agent makes dirt so "reasonable" can be pretty flexible.

My accountant may be overly conservative like @sshafran is as well but we try to stick to a 1/3 w2 and a 2/3 K-1/1120S

Holy crap! My CPA is more along the lines of 50/50. If your CPA is conservative, what is mine? I'd love to do 1/3 salary and 2/3 distributions.

 

[Tahoe Ray]

Holy crap! My CPA is more along the lines of 50/50. If your CPA is conservative, what is mine? I'd love to do 1/3 salary and 2/3 distributions.

I have 2 direct w2 employees as well so that may have something to do with it. I don't know...it's just what he's comfortable with I guess.

 

[scagnt83]

Holy crap! My CPA is more along the lines of 50/50. If your CPA is conservative, what is mine? I'd love to do 1/3 salary and 2/3 distributions.

It depends on how much you make.

Base your pay on national averages of what an officer/director would make in your industry. Since you are the Chief Executive Officer of your business.

Also look at national averages of profitability (meaning your K1 income to expense ratio).

Those are the main 2 factors the IRS will look at if you are audited.

If you are taking more than $140k in W2 wages I would get a second opinion.

S Corporation Shareholder Compensation: How Much Is Enough?