

Ask HN: Pay myself dividends instead of salary? - rajacombinator

I&#x27;m the sole shareholder of a DE C Corp and I&#x27;m currently paying myself a subsistence salary from the company coffers. Someone suggested to me that I ought to pay myself in dividends rather than salary in order to reduce my payroll tax burden. (The budget is tight enough to warrant this.) What steps do I need to take to do this? I&#x27;m guessing it involves more than ACHing the amount directly to myself, maybe need to file some document? Would welcome any suggested reading.
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tptacek
(a) I don't think this trick helps you much if you're in a C corp; this is
usually done in S corps.

(b) You are required to pay yourself a "reasonable" salary, and the IRS gets
to determine what "reasonable" means for your profession.

(c) You probably aren't going to save that much money.

(d) As I understand it, the ratio of dividend income to salary income is a
potential audit flag.

Talk to your accountant. (If you're a sole proprietor or have complete control
over your compensation, it may have been a mistake to set up a C-corp to begin
with).

As for how you pay yourself a dividend: you simply write yourself a check, the
same way you'd cut a distro in an LLC.

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logn
I've researched this topic myself and find the advice above accurate.

 _> (The budget is tight enough to warrant this.)_

If your budget is tight then maybe you qualify for more tax breaks and
incentive programs than you realize. Do a comparison between taking every
deduction/credit possible and doing your dividends.

IANAL.

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rajacombinator
Thanks all for the suggestions. To elaborate, I was surprised as a first time
incorporator to find that payroll taxes essentially doubled my tax burden. (On
a salary in the 20-30k range.) Based on the advice in your replies it looks
like this optimization is probably not worthwhile or at least not without
consulting a professional.

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27182818284
The payroll tax burden as a founder of my first DE C Corp was more than I had
expected, but not abnormal in the sense of the US. If I could do it over, I
would handle it differently and talk to a CPA upfront (rather than later like
I did) before doing it, so that the burden was less.

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mkobar
C Corp dividends are double taxed (once for the Company and once for the
individual). This is a good strategy for Sub Chapter S Corps, but not C Corps.

Google Double taxation for more info.

Disclaimer - I am not a CPA or even play one on TV.

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dragonwriter
Depending on how little of a "subsistence salary" we are talking about (and
how little other taxable income the owner has) the increase in income tax may
be less than the savings in payroll tax involved in moving from salary to
dividends.

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whichdan
Talk to a CPA. Seriously.

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lauradhamilton
You can get into trouble with the IRS. Consult a professional.

