How to Figure Payroll Taxes for S-Corp?

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Topic Author
catchinup
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How to Figure Payroll Taxes for S-Corp?

Post by catchinup »

I am self-employed through my S-Corp. I have a new accountant, but he does not do payroll. My old accountant did my payroll. I'm trying to figure out how to fill the gap in what my previous accountant did for my payroll. I would also like to keep the same procedures my old accountant and I used to follow.

Here is what we did:

The previous accountant did my quarterly filings, figured my payroll taxes and filed my W2.

Every year at year end (Q4), we would decided on the salary I wanted to take, she'd figure my tax liability, and I would pay the taxes according to her instructions she would email me. She'd also file zero on my behalf for Q1-Q3. On 12/31 we would enter a journal entry for the taxes paid.

What is the best way for me to duplicate what my previous accountant was doing on my own? Can I do it in Quickbooks? I see they have a payroll module, but it seems geared towards regular wages which I don't want to do. I have never paid myself a physical paycheck for example. I just take out a draw as I go and journal in my salary at year end.

Thanks
SouthernFIRE
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Re: How to Figure Payroll Taxes for S-Corp?

Post by SouthernFIRE »

I just went through the process of forming an S Corp and setting up payroll this year. My accountant recommended a payroll company called OnPay. I have been pleased with them so far. For $40/month they remit state and federal taxes, quarterly filings, and direct deposit W2 paycheck. I did not shop around the pricing with other payroll companies but this gives you a data point to compare against handling yourself through Quickbooks.
Scrapr
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Re: How to Figure Payroll Taxes for S-Corp?

Post by Scrapr »

Second the payroll service. I'd call some & set up a meet to talk about what you want to do. Ours has saved my bacon several times. Including just last week with a report I had misplaced for workers comp audit
awdesign
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Re: How to Figure Payroll Taxes for S-Corp?

Post by awdesign »

I have been using Quickbook online payroll service and happy so far. It send you reminders and does not file and epayment.
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Hayden
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Re: How to Figure Payroll Taxes for S-Corp?

Post by Hayden »

I do payroll myself, and it really is quite simple. My recommendation (what I did) start out using quicken online payroll. Do that for a year (or more) and you'll understand exactly what needs to be done. Then you can decide whether you want to keep using them or do it yourself.
CascadiaSoonish
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Re: How to Figure Payroll Taxes for S-Corp?

Post by CascadiaSoonish »

We did payroll manually for years with some assistance from an accountant, then switched to one of the major payroll service providers. I highly, highly recommend using a service. Cheaper in the long run, especially when you factor in all the little one-off things they take care of for you like adjustments in rate schedules and staying compliant with changes in reporting and regulatory compliance.
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catchinup
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Re: How to Figure Payroll Taxes for S-Corp?

Post by catchinup »

Hayden wrote: Sun May 12, 2019 11:02 am I do payroll myself, and it really is quite simple. My recommendation (what I did) start out using quicken online payroll. Do that for a year (or more) and you'll understand exactly what needs to be done. Then you can decide whether you want to keep using them or do it yourself.
Thanks. Do you mean QuickBooks or quicken? Do you think I can file zero using QB except for in Q4 at year end? (Assuming you meant QB)
Topic Author
catchinup
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Re: How to Figure Payroll Taxes for S-Corp?

Post by catchinup »

awdesign wrote: Sun May 12, 2019 10:51 am I have been using Quickbook online payroll service and happy so far. It send you reminders and does not file and epayment.
Thanks do you think I can continue filing zero in Q1-Q3? And figure my salary at year end the way I have been ?
awdesign
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Re: How to Figure Payroll Taxes for S-Corp?

Post by awdesign »

I am not sure if it is legal not to take reasonable w-2 every month. My accountant wants me to take w-2 salary every month to be safe. I pay myself w-2 monthly and take pass tru at the end of the year. It is easy to use QuickBooks for payroll. I use QBOnline Essentials + QBO Payroll.
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catchinup
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Re: How to Figure Payroll Taxes for S-Corp?

Post by catchinup »

awdesign wrote: Sun May 12, 2019 1:19 pm I am not sure if it is legal not to take reasonable w-2 every month. My accountant wants me to take w-2 salary every month to be safe. I pay myself w-2 monthly and take pass tru at the end of the year. It is easy to use QuickBooks for payroll. I use QBOnline Essentials + QBO Payroll.
I've been doing it annually for many years and working with 2 accountants that way. Both thought it was fine in fact the first accountant I had set me up that way without me requesting anything because I didn't know how it should work. I think it is legal but I'm also learning the different accountants have different opinions. Thanks
Gemini
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Re: How to Figure Payroll Taxes for S-Corp?

Post by Gemini »

OP, it is perfectly fine to do the payroll the way you do. I have had this discussion with my CPA as well as a tax attorney and it is perfectly okay.

I am in a similar boat - switched to S Corp this year, and CPA does not do payroll. I will also be doing one paycheck per year. From all the advice I have gotten, including from my CPA, it is best to NOT do it yourself. Most of the companies I have looked into, i.e. Gusto, want to charge monthly for a payroll. I literally just need to run ONE per year. It makes no sense to pay ongoing monthly fees. I suppose one can sign up in December, or whatever arbitrary month, pay for one month and cancel. I have never looked into this further as payroll is not actively on my radar.

If you come up with a professional solution, please share.
awdesign
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Re: How to Figure Payroll Taxes for S-Corp?

Post by awdesign »

Gemini wrote: Sun May 12, 2019 8:19 pm OP, it is perfectly fine to do the payroll the way you do. I have had this discussion with my CPA as well as a tax attorney and it is perfectly okay.

I am in a similar boat - switched to S Corp this year, and CPA does not do payroll. I will also be doing one paycheck per year. From all the advice I have gotten, including from my CPA, it is best to NOT do it yourself. Most of the companies I have looked into, i.e. Gusto, want to charge monthly for a payroll. I literally just need to run ONE per year. It makes no sense to pay ongoing monthly fees. I suppose one can sign up in December, or whatever arbitrary month, pay for one month and cancel. I have never looked into this further as payroll is not actively on my radar.

If you come up with a professional solution, please share.
How do you pay employment taxes and invest into 401k if you pay yourself once a year?
Topic Author
catchinup
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Re: How to Figure Payroll Taxes for S-Corp?

Post by catchinup »

awdesign wrote: Sun May 12, 2019 8:30 pm How do you pay employment taxes and invest into 401k if you pay yourself once a year?
Awdesign -- I just pay all my taxes in Q4. For tax deferred 401k, i usually contribute a conservative amount as the year progresses.. which does commit me to a certain level of salary..but I have the option to do that. This way at year end there is flexibility and I can look at my whole financial picture for the year and decide what I want to do.
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Re: How to Figure Payroll Taxes for S-Corp?

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (taxes).
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SouthernFIRE
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Re: How to Figure Payroll Taxes for S-Corp?

Post by SouthernFIRE »

catchinup wrote: Sun May 12, 2019 1:32 pm [quote=awdesign post_id=4540488 time=<a href="tel:1557685151">1557685151</a> user_id=145808]
I am not sure if it is legal not to take reasonable w-2 every month. My accountant wants me to take w-2 salary every month to be safe. I pay myself w-2 monthly and take pass tru at the end of the year. It is easy to use QuickBooks for payroll. I use QBOnline Essentials + QBO Payroll.
I've been doing it annually for many years and working with 2 accountants that way. Both thought it was fine in fact the first accountant I had set me up that way without me requesting anything because I didn't know how it should work. I think it is legal but I'm also learning the different accountants have different opinions. Thanks
[/quote]

Personally, I don’t see how this can be legal. You are retaining withholding taxes from the government for most of the year based on an artificial pay structure. It is no different than failing to timely pay estimated taxes. But to each their own.
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MP123
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Re: How to Figure Payroll Taxes for S-Corp?

Post by MP123 »

SouthernFIRE wrote: Sun May 12, 2019 9:46 pm
catchinup wrote: Sun May 12, 2019 1:32 pm [quote=awdesign post_id=4540488 time=<a href="tel:1557685151">1557685151</a> user_id=145808]
I am not sure if it is legal not to take reasonable w-2 every month. My accountant wants me to take w-2 salary every month to be safe. I pay myself w-2 monthly and take pass tru at the end of the year. It is easy to use QuickBooks for payroll. I use QBOnline Essentials + QBO Payroll.
I've been doing it annually for many years and working with 2 accountants that way. Both thought it was fine in fact the first accountant I had set me up that way without me requesting anything because I didn't know how it should work. I think it is legal but I'm also learning the different accountants have different opinions. Thanks
Personally, I don’t see how this can be legal. You are retaining withholding taxes from the government for most of the year based on an artificial pay structure. It is no different than failing to timely pay estimated taxes. But to each their own.
[/quote]

The idea is that since W2 withholding taxes come off the top of form 2210 there isn't a quarterly underpayment penalty if you just do one big payroll in Q4 and withhold/remit the tax then. It would be the equivalent of someone being unemployed all year and then getting a job in December. In fact you could size the amount of W2 withholding to cover the estimated taxes that would have been due on any additional income like capital gains earned throughout the year rather than paying estimated taxes when they were due.

I tend to agree with you that it's a loophole but probably not illegal.

To be clear I'm not advocating this approach, just trying to explain the theory behind it. We do a monthly payroll.
Spirit Rider
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Re: How to Figure Payroll Taxes for S-Corp?

Post by Spirit Rider »

It is perfectly legal for a one person S-Corp to pay its 2% shareholder employee once per year and entirely legitimate for the W-2 withholding to cover all tax liability including distributions of ordinary income during the year.

There are several IRS rules and accounting principles that must be adhered to:
  • Living expenses: You must be able to live on distributions of ordinary income and certain expenses during the year. Health insurance premiums and HSA contributions can be paid or reimbursed during the year. This is the only compensation that can be dispensed outside of payroll. Only sole proprietors and partners can take draws of compensation.
  • Reasonable compensation: The above is complicated when > 50% of your income is wages paid at the end of the year. The IRS has been getting more aggressive with reasonable salary over the last decade with several court rulings on their side and the issuance of guidance. Congress and the IRS have further moved the needle with the new section 199A 20% QBI deduction. If you are subject to the W-2 wage limitation, your QBI deduction will be limited if your W-2 wages are < 2X your distributions.
  • Retirement plan contributions: All retirement plan contributions must come from S-Corp accounts. As has been pointed out, you can make employer contributions during the year based on what your wages end up being. Be very careful here, excess 401k employer contributions can not be returned if made during the tax year, are subject to a 10% penalty and a bit of a mess to clean up. Employee elective contributions can only be deducted from compensation not already received, after election and with a pay date on or before 12/31.
  • While an S-Corp is a pass-thru for taxes purposes, it is a corporation with strict rules on the use and abuse of corporation accounts. You must account for payment/reimbursement of expenses, distributions of ordinary income, wages and associated taxes. Just because a few CPAs play fast and loose with the rules, does not mean you should.
I recommend S-Corps pay wages at least quarterly. Very few people are able to live on a minority of their income for the entire year. Also, it is inefficient to tie up a substantial portion of your income inside the S-Corp, when you could be putting it to work for you. Do not let the simplicity of a once/year payroll override the many benefits of more frequent payrolls
Greenman72
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Re: How to Figure Payroll Taxes for S-Corp?

Post by Greenman72 »

I'm a CPA and I also do not do payroll.

My advice--cough up the money and pay for a payroll service, such as Paychex. Once you take into account the value of your time, you will realize that it costs a lot less than you think.
EnjoyIt
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Re: How to Figure Payroll Taxes for S-Corp?

Post by EnjoyIt »

I have 2 corporations. One of them I pay myself quarterly, and is the bulk of my income. The other corporation pays me only $1k-$2k a year in w2 wages at the end of the year for a particular service it provides at that time. About 2 weeks ago I got off the phone with an IRS representative who very politely explained that it was unusual. His biggest concern was that I only filed a 941 in the 4th quarter of every year and not in the other 3 quarters. He then manually reported that no wages were paid in Q1-Q3 for the past several years. There were no real issues or penalties but he said he had to go through all those steps and that I "should" do a 941 every quarter even if no wages are paid, or to call in to the IRS to let them know that no wages were paid and then I would not need to file those 941s.

I don't know if this data point helps anyone but I thought I would share.
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Topic Author
catchinup
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Re: How to Figure Payroll Taxes for S-Corp?

Post by catchinup »

Greenman72 wrote: Mon May 13, 2019 10:31 am I'm a CPA and I also do not do payroll.

My advice--cough up the money and pay for a payroll service, such as Paychex. Once you take into account the value of your time, you will realize that it costs a lot less than you think.
Thanks. I wonder why the last 2 accountants I had figured the payroll for me but in shopping around for a new accountant I so far have not found one that wants to figure my payroll. Do you think it'd be difficult to find an accountant to do it for me as become accustomed? Has the standard practice changed?
Gemini
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Re: How to Figure Payroll Taxes for S-Corp?

Post by Gemini »

awdesign wrote: Sun May 12, 2019 8:30 pm
Gemini wrote: Sun May 12, 2019 8:19 pm OP, it is perfectly fine to do the payroll the way you do. I have had this discussion with my CPA as well as a tax attorney and it is perfectly okay.

I am in a similar boat - switched to S Corp this year, and CPA does not do payroll. I will also be doing one paycheck per year. From all the advice I have gotten, including from my CPA, it is best to NOT do it yourself. Most of the companies I have looked into, i.e. Gusto, want to charge monthly for a payroll. I literally just need to run ONE per year. It makes no sense to pay ongoing monthly fees. I suppose one can sign up in December, or whatever arbitrary month, pay for one month and cancel. I have never looked into this further as payroll is not actively on my radar.

If you come up with a professional solution, please share.
How do you pay employment taxes and invest into 401k if you pay yourself once a year?
Q4
Gemini
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Re: How to Figure Payroll Taxes for S-Corp?

Post by Gemini »

catchinup wrote: Mon May 13, 2019 2:25 pm
Greenman72 wrote: Mon May 13, 2019 10:31 am I'm a CPA and I also do not do payroll.

My advice--cough up the money and pay for a payroll service, such as Paychex. Once you take into account the value of your time, you will realize that it costs a lot less than you think.
Thanks. I wonder why the last 2 accountants I had figured the payroll for me but in shopping around for a new accountant I so far have not found one that wants to figure my payroll. Do you think it'd be difficult to find an accountant to do it for me as become accustomed? Has the standard practice changed?
There is no "standard" practice. Some do and some don't. If you want to keep your accountant, another option would be to just use something like upwork.com and pay someone a one time fee to run payroll - I am considering this option.
Greenman72
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Re: How to Figure Payroll Taxes for S-Corp?

Post by Greenman72 »

^ +1 to "there is no standard practice. Some do and some don't."

I know that there are CPA firms out there in the world that will still do payroll. But they will probably cost about the same (if not more) than a payroll company.
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