Company Owners and Compensation: the ROBS Plans

  • Taking Compensation. 
    • One of the ways in which you can establish that you are a bona fide employee of the company is for the Corporation to pay you compensation. 
    • Business owners don’t always take compensation, initially or take compensation from the Corporation at irregular intervals. This is ok. Your Corporation should generate revenues sufficient to support any compensation you take. 
  • Reporting Compensation. 
    • If you are instructed to pay yourself as a 1099/independent contractor, do not agree to do so without talking with us first. This is generally not allowed. 
      • If you invested retirement monies into the Corporation you must pay yourself as a W-2 employee. 
      • You can NOT pay yourself as a 1099/independent contractor if you invested retirement monies into your Corporation.
      •  Your Corporation can hire/employ other individuals as 1099/independent contractor(s) so long as you meet the federal as well as your state/local requirements related to 1099/independent contractors.
  • Understand How You Are Being Paid
    •  If you are instructed to take your compensation as a “draw” from the Corporation, that suggests you would be reporting your Corporation as an “S-Corporation” which is not allowed by IRS regulations with the strategy you engaged in. 
    • If you take a “dividend” from the Corporation, all owners of the Corporation must receive their rightful share of the dividend. Remember, the 401(k) Plan is an owner of the Corporation and must receive a share of the dividend.
For more information about company owners and the appropriate methods of tracking their hours please see: Company Owners and Tracking Hours

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