Legal Question in Business Law in Florida

Re: Classifying Officers as company employees

If the only employees are you and your husband, no worker's compensation insurance is required. If you are starting a business, you should seek the advice of a CPA and lawyer to make sure you do not take any steps now that may cost you down the road.

Re: Classifying Officers as company employees

While wc coverage is not mandatory for you I suggest you get it.W2s are to be used. After you form your corporation you then can file the appropriate subchapter s forms with IRS. The shareholders will then pay taxes on profits and take losses. The corporation will not pay income tax. I suggest you contact an accountant and a lawyer when you decide to file. Good Luck.

Re: Classifying Officers as company employees

Yes, as officers you are both considered employees IF you are compensated for services performed for the company. Payments made to employees for services rendered are wages subject to payroll taxes. Distributions made to shareholders of an S-Corp are distributions of profit not subject to payroll taxes. Therefore, many shareholder-employees of S-Corps attempt to maximize their distributions v. taking a salary. If you pay NO salary and make only distributions to shareholders and you are audited, the IRS will likely recharacterize your distributions (or a significant portion) as taxable compensation subject to payroll taxes and make you file (late) payroll tax returns and pay payroll taxes, penalties and interest. Therefore, if you want to be safe - when it comes time to make withdrawals from the company - you must pay some salary to the officers. How much? Some say 40% salary 60% distribution as a fairly safe rule of thumb. But actually, the only court cases that have been won by the IRS have been where NO salary was paid. So - if you wanted to get a little more aggressive - you might consider a 1/3 / 2/3 split or better (I have seen 1/10 / 9/10 with no adverse consequences). You should consult with your CPA to determine the proper allocation for you based on your tolerance for risk.