August 15, 2025
How to: Take Money Out of Your S Corporation
As an S-Corporation owner who work for your own company, there are three primary ways to pull money out your company: taking a reasonable salary, receiving distributions, and getting reimbursements. Each method has its own rules and best practices. Follow this guide to ensure you handle these transactions correctly.
Here’s what we’ll cover:
- Method 1: Reasonable Salary
- Method 2: Distributions
- Method 3: Reimbursements
Method 1: Reasonable Salary
An S-corp owner must pay themselves a reasonable salary as an employee of their business. This salary should reflect the value you bring to the company and be comparable to what someone else would be paid for similar work in the market.
How to do it:
Step 1: Determine a reasonable salary.
Step 2: Use a payroll provider (like Gusto) to streamline payroll processing and ensure proper tax withholdings. Your payroll provider can also advise on state payroll registration requirements.
Step 3: Pay yourself on a regular schedule, such as bi-weekly, monthly, or quarterly.
Important Notes: Failure to pay yourself a reasonable salary can result in penalties from the IRS / revoking your S-Corp status.
Method 2: Distributions
Distributions are payments made to S-Corp owners from the company’s profits. Unlike salaries, distributions are not subject to payroll taxes. This is often be tax-advantageous, but it's important to strike a balance between salary and distributions to avoid IRS scrutiny.
How to do it:
Step 1: Ensure your company has sufficient profits to make distributions. Profits include current earnings, plus any previous earnings that were not distributed.
Step 2: Decide the amount and timing of the distribution. Distributions can be taken at any time during the year.
Step 3: Transfer the distribution amount from the company’s bank account to your personal account. As simple as that :)
Important Notes:
Distributions should be documented in your company’s accounting system.
Excessive distributions without a reasonable salary can raise red flags with the IRS.
Method 3: Reimbursements
Reimbursements are payments made to you for expenses you paid out of pocket business expenses.
How to do it:
Step 1: Pay for business expenses out of your own pocket, such as travel, home office, internet, etc.
Step 2: Submit copies of all receipts and records of the expenses to the business for reimbursement.
Step 3: Record all reimbursable expenses in your businesses accounting system to ensure they will be documented as deductible expenses.
Step 4: Transfer the reimbursement amount from the company’s bank account to your personal account.
Important Notes:
You should maintain detailed records and invoices for all reimbursed expenses.
The business should properly categorize expenses to avoid any issues during audits.
Summary
By understanding and applying these three methods, S-Corp owners can efficiently and legally get money out of their company. Remember to maintain proper documentation and adhere to IRS guidelines to ensure compliance and avoid potential penalties.
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ℹ️ This information is for educational purposes only and does not constitute legal or investment advice.