What should I prepare before discussing an S corporation?

Your preparation checklist

1. Financial reports. Recent profit-and-loss and balance-sheet reports, plus your expected profit for the coming year.
2. Tax history. Prior business and personal tax returns, existing election notices and relevant IRS correspondence.
3. Business records. Formation documents, EIN, ownership percentages and details about all owners.
4. Owner responsibilities. The work each owner performs, approximate time spent, current pay and information about comparable wages.
5. Payroll and benefit details. Existing payroll, other wages, retirement plans and health insurance arrangements.
6. Cash-flow expectations. Cash available for owner payroll and the cost of added payroll, accounting and tax filings.

You do not need to have every answer before the meeting. Flag missing or uncertain information so the CPA can identify the next steps.

Why compensation belongs in the discussion

The IRS states that an S corporation must pay reasonable compensation to a shareholder-employee for services before making non-wage distributions to that shareholder-employee. A calculator’s salary input does not establish what compensation is reasonable for your work.

Prepare a description of your duties and time spent. Ask how comparable wages and the facts of your business will be evaluated.

Questions to work through with your CPA

• Is the business eligible for an S corporation election?
• What compensation can be supported for the owner’s actual work?
• What recurring payroll and filing costs would the election add?
• How would health insurance, retirement contributions and other wages affect the analysis?
• What effective date is appropriate, and what filing deadline applies?
• Are the books reliable enough to compare the options?