I assume that if the LLC has elected to be taxed as if it was an S-Corp it would be subject to all the S-Corp tax rules and tax regulations. I do not see how it could be exempt from some rules (in this case reasonable salary) but not others. I would treat this LLC, the same as anyother S-Corp.
If the shareholder does not do any work for the S-corp, there does not need to be any salary.
If the S-corp does not have the money to pay a salary, there does not have to be a salary paid.
If the shareholder has NOT taken ANY moneys or property out of the S-corp, there does not have to be a salary paid. (IRS only reclassifies distributions or payments)
I agree that for federal tax purposes, an electing S-corp/LLC is subject to any and all S-corp requirements.
First, look to the S corp's cash distributions out of AAA. If they have taken distributions out of the business and the shareholders (LLC members) are currently working in the company, then they basically have salaries. It is better to go ahead and claim reasonable salaries than to have the govt. come back and impute the payroll taxes, interest and penalties on the total distributions.
Requirement or rules regarding reasonable salary would mean reasonable based upon the circumstances of this LLC (that elected to be taxed like an S-corp). If this business is more or less a shell (or holding company) that requires little or no labor, then little or no salary may be acceptable. On the other hand if the two members of the LLC (S-corp) perform real services, they should be compensated as employees. What is reasonable wages? If possible find out what other businesses in the area pay for similar work. Or, estimate the hours of work and extend it times a resonable hourly rate for this type of labor. Some tax professionals would recommend your states SUTA limits as a minimum amount of compensation. That way the State and Fed government can not claim you are trying to beat unemployment taxes.
Printer-friendly format
= Quickfinder Team Member
