Must S corp profits FIRST be used to pay owner/employee salary?
Thought maybe you could 1st use to pay some of the business expenses.
- Anonymous1 decade agoFavorite Answer
We have a cash flow problem. A lot of small business do when they first start; some have them forever due to poor financial management. If you're making money; I mean "net", then you need to budget for your expenses. Payroll is deductible, and employee's not being paid can lead to some very harsh consequences. If you need more operating capital, then maybe it's time you looked for a credit line to get you through until you can collect on your Accounts Receivables (AR). If you're running a neg. cash flow, then you either have too many employees, or are paying someone too much. Get a budget and stick to it or you may not have a business for very much longer. Most businesses fail not from lack of a good product/service, but from financial mismanagement. Good luck.
- SlumlordLv 71 decade ago
Profits are whatever is left over after you pay all expenses. You can use the money you get to pay salaries first, expenses first, whatever; but after you are all done the profits are what is left.
Note if you pay salaries first and not enough is left for bills you may start getting collections calls. Of course if you pay bills and can't pay decent salaries your employees may move on (or if you are the owner you may be paying your company bills but can't afford your own rent).
As far as the IRS is concerned, the profit is what gets taxed (there are all sorts of exceptions and odd rules - but thats the main point). If you lose money you probably won't have to pay tax - but lose money consistently and you'll also be going out of business.
- Feeling MutualLv 71 decade ago
If you do not pay the owner's/employee's salary and benefits FIRST, the IRS will take appropiate payroll taxes out of any dividends paid out to the shareholders.
Money paid for business expenses ARE NOT PROFITS!
- 1 decade ago
Payroll is a bill. Not paying employees is called slavery. The government puts paying employees above taxes.
I once owned an S Corporation. Often, I cut my paycheck but did not cash it because I needed the cash for other bills. Uncle Sam gets very upset if you do not submit payroll taxes and social security in a very timely manner. You DO NOT every want the government to audit your payroll.
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- Anonymous1 decade ago
No, they must first pay the child support.
- dwalkercpaLv 51 decade ago