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An S Corporation is any business that elects to pass corporate income, losses, deductions and credits through to their shareholders for tax purposes. Now, setting yourself up as an S Corporation is no small thing, but maybe you haven’t quite gotten to the execution stage of it and you’re still mulling it over. With an S Corporation, comes payroll responsibilities, and it is best to plan for the other when the one is also being considered.
Let’s go through a step-by-step guide including answers to questions like what it means to set up payroll, why it needs to even be done, and an exact tutorial of how to do it with relation to your very new S Corp!
What Is Payroll?
In layman’s terms, payroll is simply the process of an employer paying its employees. Now to get more into detail, this includes all of the record-keeping, the taxes, and any withholdings required for that particular income.
As an LLC, for example, you don’t actually have to even run payroll as you can simply take distributions from your business if you’re the sole owner; the same process applies with multiple LLC owners. It’s a nice perk because you really don’t have to worry yourself with all the details like withholdings and record-keeping in that aspect.
Why Do You Need Payroll As An S Corp?
An S Corporation is different. You do actually need to pay yourself via payroll. The reason for setting up an S Corp is so you can essentially pay less in taxes. You do this instead by not taking all your distributions, but by rather taking some distributions and some salary through payroll. Both are taxed differently.
Long story short, if you’re an S Corp, you have to pay yourself a salary, and that salary has to be through payroll.
How To Set Up Payroll
Plain and simple, you have two options: do it manually or use a payroll provider. Now, I would NEVER recommend doing it manually, I personally have never run payroll manually due to the sheer amount of forms to fill out and record-keeping. The point to set up an S Corp is to pay lesses in taxes, and now if you’re a person who even has to worry about taxes in the first place, it’s probably not worth your time to run payroll manually. You’re far better off paying for a payroll provider where these services withhold taxes on your behalf and send them off to the IRS.
Think of it like this: the point of an S Corp is to save money in taxes. Odds are, the amount you’re saving far outweighs the cost of paying one of these payroll providers. At least for me, it does.
If you want to see my whole S Corp Payroll guide, take a look below!
My Personal Recommendation
You’ve decided to save yourself hours and hours each month and go with a payroll provider, awesome. My personal recommendation and service I use, is Gusto. I personally use them for two of my businesses that I have myself on salary for, and if you want to see the full rundown on Gusto, check out my video here.
The gist of it is Gusto is the cheapest option on the market, it’s meant for smaller businesses, and it has the easiest interface to use from all the other options I spent dozens of hours researching.
Setting up Gusto is fairly straightforward with a 10 step process they walk you through that takes no more than 10 minutes. Here’s the summary:
- Basic business information (address, owners, employees, EIN)
- If you don’t have an EIN yet, take a look right here as that is a necessary part of this process
- State ID number is also likely needed for paying into state unemployment
- Set your payment frequency and salary amount (some states require different frequencies so be sure to research beforehand)
Once all this information has been uploaded, the rest is fairly easy. You’ll need to go in a couple days prior to your payday and run your first payroll; it only takes a couple minutes. Personally, I just integrate my Google Calendar so I can see all the important dates for this whole process.
Run. Your. Payroll. On. Time. This is very important that you’re keeping up with all the payroll dates. The “Failure to Deposit” penalty is 10% and is if you’re not running your payroll correctly or setting aside the right amounts.
Setting Up Payroll: Final Thoughts
So now you know how to set up payroll for your new S Corp. My next recommendation, is again, checking out my Gusto review video to really get an in depth guide on everything you need to know about the platform.
The additional perk? Sign up here and get a $100 Visa gift card when you sign up using my link: it’s good for you, it’s good for me, and it makes the world go ’round.