Per Diem Rates from the U.S. General Services Administration
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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").
Taking Money Out of an S corporation
S corporation owners can take money out of the corporation in a variety of ways.
Wages
S corporation shareholders who work for the business (shareholder/employee) are classified as employees and receive the same tax treatment as any other non-owner employee (i.e. a paycheck is issued, taxes are withheld, a W-2 is issued).
Shareholders who work for the S corporation should receive reasonable compensation for the type of work being performed. There is no IRS definition of what "reasonable" means. Use your common sense. What are other people being paid to do the same work who have comparable experience?
Distributions from S corporation Earnings
When a regular C corporation distributes its earnings out of its retained earnings, the distribution is called a dividend and it is taxable (Form 1099-DIV is issued to the recipient). C corporation shareholders report the dividend on their individual income tax return.
On the other hand, S corporation distributions are tax-free to shareholders to the extent of their stock basis. Tax-free distributions are referred to as non-dividend distributions. If a distribution to a shareholder exceeds his/her stock basis, the excess amount is a short-term or long-term capital gain, depending on the shareholder's holding period of the stock. S corporation distributions are not subject to FICA taxes (social security and Medicare taxes).
When An S corporation Distribution May Be Taxed As a Dividend
Although S corporations generally do not make taxable dividend distributions, there are some exceptions when an S corporation distribution may be taxed as either a dividend or as a long-term capital gain.
Let's say a business started its existence as a regular C corporation and operated that way for several years. Then, the decision is made to convert from a C corporation to an S corporation. In addition, at the time of conversion the C corporation had $10,000 in retained earnings. After the conversion, if that $10,000 in pre-S corporation retained earnings is distributed to S corporation shareholders, each shareholder would report his percentage share of the distribution as taxable dividend income on his personal income tax return.
You can minimize employment taxes by taking a salary in the lowest reasonable amount for the type of work you perform for the business and take tax-free cash distributions (it does exceed your stock basis).
Borrowing from the S corporation
S corporation shareholders may borrow from the business.
A promissory note should be prepared and properly executed. The note should include normal lending terms, such as a fair market interest rate, unconditional promise to repay, and a date certain for repayment.
Reimbursement of Expenses
If you spend your own personal money on business-related items and expect to be reimbursed by the S corporation, be sure to provide the S corporation with documentation to support the its reimbursement to you.