Hi everyone, I started web development last year, formed an S Corp, and have been steadily making money. The money I make has been going into my business checking account which is, of course, completely separate from my own checking/savings accounts. I know an S Corp gives me pass-through income so that my profits will be taxed just like ordinary income, but I don't understand when/how I can actually take money out of that business checking account and use it for personal expenses. Do I need to establish a "salary" that I pay myself every month or can I just take money out at will? Any advice/help would be appreciated.
Yes, you need to salary yourself. You have to take out SS and all that stuff. You can also give yourself a once a year bonus (check me on that) that is not subject to SS withholding, but is still subject to federal taxes. The goal, for your S-Corp, itself, is to show very little profit (or even a loss) at the end of the year.
An accountant would be your best bet. I pay myself a salary then take a draw when I need a large amount of cash, as this cash has already been taxed in previous years on my personal income taxes. Make sure you are using a decent accounting program to track all your income and expenses.
You need to set yourself up the right 'mix' of salary and distribution income. If you give yourself too little salary and too much distribution, the IRS may suspect you of trying to avoid payroll tax and penalize you. If you overdo teh salary and underdo the distribution, you might be needlessly paying too much payroll tax. It's best to let a CPA work that out with you.
I am no accountant, but from personal experience, and from what I seem to recall, if you are going to be drawing any sort of guaranteed, regular income (such as a regular paycheck in "management compensation" as opposed to income tied directly to presumed ownership profits, there may be a benefit to forming an LLC over an S Corp. Do check on this - I hold no weight in this area, but I seem to recall something to this effect. I know for me, my usual practice is to frame a guaranteed income that will result in no net profit or loss at the end of the year, and form a LLC. Check with your accountant. Best of luck.