Must or should an "S" Corp have employees on payroll

[Brecht]

Good Afternoon Everyone,

We own a company registered as an S Corp located in Arizona. Two parts of the business, one is a Independent Rep Firm (selling to retailers on behalf of other manufacturers), the other is custom embroidery. It is just my wife and I in the company, we have no employees or outside help. My accountant is recommending we set up payroll of $500 per month for my wife and me per IRS guidelines. Everyone else I know who is an S Corp does not claim any employees including themselves. I really do not want to pay us (even this token amount) if possible. Can I please ask what others in this group who are S corps are doing? Thanks!! Ralf

[Fulcrum]

I can't help with the payroll side, but I am curious as to why you don't want to pay yourselves through the S corps.

[Evan]

If you're working for the company, you should be paying yourself a wage. Nobody works for any company for free. At some point, you'll have enough to provide yourself a distribution/dividend. If you do that as an S-Corp and don't pay yourself wages, you do risk an audit and having the distributions reclassified as wages.

Some people try to jam personal expenses through their business as a way to say "well, this was in lieu of a salary" and that is also inappropriate too.

[RetiredMfr]

I agree with Evan. My company was an S Corp for about 30 years and my accountant always had me pay myself a "reasonable" salary. Otherwise if (or probably when) you are audited, you will owe a ton of payroll taxes and penalites on the amount you should have paid in on your salary. The government doesn't like when you try to avoid paying Social Security, Medicare, and income taxes!

[Fulcrum]

In addition to the pitfalls outlined above, by not paying, nor budgeting for, your salary, there is a high probability that you will think you're turning a profit while your barely generating enough to cover your wages.

[Brecht]

Thanks for the replies! I appreciate and will use the advise!!