How to get Money from Your S-Corporation

One of the top questions you should ask yourself when starting a business is, “how do I take money from my business and what are the tax ramifications of doing this?” This one question is loaded with a great opportunity for tax planning when you approach your tax advisor with it. Well, if you’re reading this article, you may already have started your business and chosen the S-Corporation structure without fully understanding the answer to this question. The good thing is that it’s never too late to learn and apply what you learn to how you operate your business going forward.

There are a few ways to get money from your S-Corporation and here’s the most common ways:

1. Paying yourself a reasonable compensation

If you will be performing majority of the services to your S-Corporation, you are required to pay yourself what the IRS calls a “reasonable compensation”. Check out our blog article “Reasonable Compensation – What No One is Talking About” to learn more.

2. Charge rent to your S-Corporation

If your S-Corporation’s office is operated from your home, you can charge rent for use of your personal home. Be sure to consider industry rent values based on the square footage your business is using of your home, including storage of equipment in your garage, if applicable! Charging rent to your S-Corporation will result in you having rental income, but you are able to deduct rental expenses against this income.

3. Create a retirement plan for your S-Corporation

Setting up a retirement plan for your S-Corporation is a great way to create a vehicle that will help fund your retirement needs. Your S-Corporation can make pension contributions on your behalf and on behalf of any employees you have. Additionally, you may setup a salary reduction retirement plan that will help reduce your personal income taxes and receive matching contributions from your business.

4. Take non-taxable distributions

You can take what can be considered as “non-taxable” distributions from your S-Corporation if you have adequate basis in your S-Corporation to do so and all other tax rules are followed.

We’ve just laid out four possible ways for you to get money from your S-Corporation as a shareholder. S-Corporations allow flexibility you can use to make a living and build for retirement.