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  1. #1
    Join Date
    Mar 2009
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    Default Is There a Difference Between a Shareholder and an Shareholder/Employee

    All,

    I've got a question regarding reasonable salaries for a shareholder of an S-corp. I'm a 10% shareholder in an S-corp and I receive dividends. I, however, do not receive a wage as I am not an 'employee'... I am just an investor/shareholder. Is this correct? i.e. *should* I be receiving a wage? There are other shareholders of this S-corp that actually do participate as employees in the company and they do receive wages. Do I need to be treated differently... should I be treated differently? Just want to make sure we are handling this correctly.

    Thanks!

  2. #2
    Join Date
    Sep 2005
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    98,846

    Default Re: Is There a Difference Between a Shareholder and an Shareholder/Employee

    If you want to negotiate a wage based upon work you're doing for the company, start negotiating with the other shareholders.

  3. #3
    Join Date
    Oct 2006
    Posts
    16,391

    Default Re: Is There a Difference Between a Shareholder and an Shareholder/Employee

    Quote Quoting funperro
    View Post
    All,

    I've got a question regarding reasonable salaries for a shareholder of an S-corp. I'm a 10% shareholder in an S-corp and I receive dividends. I, however, do not receive a wage as I am not an 'employee'... I am just an investor/shareholder. Is this correct? i.e. *should* I be receiving a wage? There are other shareholders of this S-corp that actually do participate as employees in the company and they do receive wages. Do I need to be treated differently... should I be treated differently? Just want to make sure we are handling this correctly.

    Thanks!
    If you are not actively working for the S-corp, then it would be illegal for you to receive wages.

    You should actually not be receiving dividends either. Distributions of your share of the profits are appropriate however. Please note that 10% of the profits of the S-corp will flow through to your personal tax return, via a schedule K1, even if the corporation is not able to distribute some or all of those profits to you. 10% of any losses would also flow through to you as well, and losses can be taken against other income.

    Undistributed profits increase your "basis" in the corporation and can later be distributed to you tax free, as you will have previously paid the tax on them.

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