S Corp Payments

a good accountant and good attorney to setup everything up. Listen to them and let them guide you thru things you know nothing about. Pay them to do their job. You will better off later on.

 

You can only have one owner as an S Corp. S, for sole.

 

+1 let the pros do it

 

That is not correct. An S corporation can have no more than 75 shareholders.

 

S doesn't stand for solo, S is the subchapter letter under Chapter 1 that allows this form of corporation in the IRS rules. When you file the paperwork to form a S Corp, you will list the names of all shareholders (owners) and their corresponding percentage of shares. So, if it is just you and him as owners, you would list each of your names, address, social # and that each person has 50% shares. That establishes that you are each equal partners and any profits or losses will be split evenly between you in the eyes of the IRS.

You should pay yourselves a small but reasonable salary on a W2. That way, you only pay FICA on whatever your salary is. The rest of the company profit can be split evenly between you two and taken as draws with no FICA withholding. You only pay FICA on a W2 salary in a S Corp, not on the remaining profit. That will save you a lot in FICA taxes doing it that way.

You should see a professional and they will get that all set up for you pretty easily. There is a time limit on when you have to file your S Corp paperwork, it has to be done pretty early in the year if you want it to take effect for the current tax year. If you wait too long, you have to wait another whole year for it to take effect.

 

An S Corp can legally hire an independent contractor and pay them on 1099. The question of legality comes from if he is truly an independent contractor or not. Does he set his own schedule or you? Does he provide his own truck or you? Does he bill you for the work he provides? ,etc. The IRS imposes some steep fines for misclassifying an employee. Your tax company can walk you through all of that and keep you legal as well. My guess is that he is probably an employee and should be paid on W2.