annual wages

[luke]

Client (Scorp) pays himself and wife at the end of each year (this is only "wages" for the year - no other employees), based on how well co did that year - he got a call from IRS and they told him he should NOT be doing that, that he HAD to be paying himself weekly, biweekly, monthly?
I feel it is perfectly acceptable as long as he sends in 941s each quarter showing zeroes?
Any other thoughts?

[DaveO]

I don't have a cite or anything but would have asked, "If an annual payroll is unacceptable where are there tables for it in the Circular E?"

[Gretel]

My thoughts: No other employee would accept just getting paid annually. Employee is employee, no matter if S-Corp. owner or someone else. Nobody is forced to be a S-Corp, but if this is entity of choice than rules should be followed.

Does it say explicitly somewhere you can't pay annually? I don't know.

[gkaiseril]

Pay a small nominal monthly salary, like $1.00, and then a big bonus in December.

A more interesting approach would be to pay a salary of $1.00 per month and then a big dividend at the end of the year to the owners. Minimum Fica and Medicare taxes, dividends that after 5 years of ownership could be classified as Qualified Dividends. The downside is IRA or retirement plan contributions. But maybe a combination of a small monthly salary, a year end bonus to meet retirement plan earnings requirements and contributions and a year end dividend. Do not forget to adjust the FITW and SITW for the taxes for year end dividends and other earnings.

[Jiggers]

Reasonable Salary

Client (Scorp) pays himself and wife at the end of each year (this is only "wages" for the year - no other employees), based on how well co did that year - he got a call from IRS and they told him he should NOT be doing that, that he HAD to be paying himself weekly, biweekly, monthly?
I feel it is perfectly acceptable as long as he sends in 941s each quarter showing zeroes?
Any other thoughts?

I think the IRS is hinting at "Reasonable Salary".

S-Corporations have a history of not paying reasonable salaries to their officer/shareholders and taking the balance as a distribution of profits. Avoiding the SS/Med taxes.

Is the owner taking any distributions of profits that he is not paying SS/Med taxes on?

The IRS may also be looking at what funds the taxpayer is living on during the year when he doesn't take a salary until the end of the year. Maybe flagging an audit on the taxpayer.

I don't think the IRS can tell a taxpayer to take weekly/monthly salaries.

I would be sure that I have the salary documented by way of the corporate minutes, especially the method of pay, including bonuses.

Corporate minutes? Your client does have, doesn't he?

I would also have an employment contract between the corporation and the officer/shareholder detailing the method of pay, including the annual pay if that is what your client sticks with.

[ChEAr$]

I think the IRS is hinting at "Reasonable Salary".

I'm sure this is what the misguided IRS type was thinking about, confusing reasonable amount with reasonable payments.

Any retail store which has to wait till Black Friday to get out of the red has a great reason for delaying salaries if it can, for there is no assurance there there will even be a Black Friday.

No, the IRS person is completely out of line.