View Full Version : Business Structure & Tax Questions

08-07-2014, 11:06 PM
Hi, everyone. I'm thinking about starting a business as an LLC with S-Corp tax election. My wife has money from before our marriage and I have the skills. So she would invest 100% of the capital and I would run the business while she remains a housewife with no activity in the business other than her investment. I'm curious if it's possible to distribute myself a reasonable salary, and reasonable dividends and then distribute the bulk of the dividend to her as a return on her investment? Let's say for example from $100,000 profit, I pay myself $30,000 in salary, $20,000 in dividends and distribute $50,000 in dividends to her. Or do all shareholders need to receive a salary regardless of whether they are active or not?

I'm not looking for any legally binding advice and if we get more serious about this idea, we of course will consult attorneys and CPA's etc. I'm just gathering some suggestions from others who may know.


08-14-2014, 09:41 AM
Only those who are active and provide services to the s-corporation must be paid a salary.

As for "dividends," s-corporations must split distributions to shareholders based upon ownership percentages. So if an s-corporation were to distribute 70,000 to owners, each owner would get their proportional share. If you each own 50% then each owner would get 50% of the distribution. Of course you can determine at the beginning what percent each shareholder owns, so she can own a larger percentage of the company and therefore receive a larger percent of any distributions that are paid.

08-19-2014, 02:26 AM
Thank you for the summary and sharing more of your own thoughts on this count.

09-23-2014, 12:18 PM
An S corporation is a good structure for a lot of small businesses. There is some issue with some of your thoughts. Distributions in a S Corp are not taxable in themselves. The profit in an S Corp is passed to the individual shareholder. The S Corp does not pay tax. You would have to take a "reasonable salary". It is possible that part of the money your wife contributed could be loan, and then the company would repay the loan plus interest. But this would be self owned interest. Some of the contributed money would need to be treated as capital. Overall I think that you are probably on the right track with choosing to be taxed as a S Corp, but the logic of how the money would come out is a bit flawed.

03-23-2018, 07:23 PM
Can I legally set up an S-corp, trade through it even if I don't have "trader tax status", and provide myself with a salary that I can use to afford myself the benefits of being able to deduct health insurance, 401k contributions, business expenses, etc? Many other non-trading businesses use this technique. Are there any other techniques that traders who don't qualify as a trader in the eyes of the IRS have found to successfully reduce their tax burdens?