According to the IRS Page Paying Yourself, as of February 26th, 2021, the procedures for compensating yourself for your efforts in carrying on a trade or business will depend on the type of business structure you elect. Below are topics that frequently arise when new business owners ask the Internal Revenue Service questions about paying themselves.
- Corporate officers
- Dividend distributions
- Form 1099-MISC or Form W-2
- Treating employees as nonemployees
- Shareholder loan or officer s compensation?
- Reasonable compensation
An officer of a corporation is generally an employee, but an officer who performs no services or only minor services, and who neither receives nor is entitled to receive any pay, is not considered an employee. Refer to “Who Are Employees?” in Publication 15-A, Employer’s Supplemental Tax Guide PDF (PDF).
Partners are not employees and should not be issued a Form W-2 in lieu of Form 1065, Schedule K-1, for distributions or guaranteed payments from the partnership. Refer to partnerships for more information.