I am about to create an S Corporation for liability and tax purposes, and I wanted to get a general feel for a tax question before asking an attorney or CPA about it.
I have a day job, for which I pay income tax, social security, etc. One of the advantages of an S Corp is that part of the income can be considered salary (and thus subject to the aforementioned taxes), and part can be a company distribution.
My question is this: can I choose not to take a salary from the company? Because I already have a salary, and any profits I earn (marginal, if anything, for the first year) will be needed for more business expenses.
I often see examples: say your company makes $100,000 in profit. You could pay yourself a salary of $50,000, which is reasonable for my field and taxed, and the remainder would be a disbursement.
But what if profit is $500? Obviously $250 would not be a reasonable salary, and really, I wouldn't really be interested in paying social security tax on it because that amount money is never going to enter my pocket.
Is my question reasonable? Am I making any fallacious assumptions here? How does an S-Corp deal with taxes on profits that are really quite marginal - small enough that the "$100,000 in profits" example doesn't apply?