Great question! While I wish there were a one-size-fits-all answer, here’s my best advice to help you move forward with confidence.
Step 1: Connect with a trusted accounting professional.
Find a reputable CPA or tax advisor and share your situation with them. They’ll ask key questions like:
- How long has your business been operating?
- When did you elect for your corporation to be taxed as an S corporation?
- Did you take any distributions starting in the year of that election?
Your answers will help them guide you toward the best next steps. Don’t hesitate to lean on their expertise—they’re here to help you succeed!
Step 2: Put yourself on payroll right away.
This is critical! The sooner you address this, the better. Give yourself time to choose a reliable payroll provider and get everything set up properly. I personally recommend ADP—their services have consistently been top-notch for my clients.
In fact, I heard from my ADP rep today that they’re offering a special deal for business owners who sign up before year-end. Take advantage of this opportunity—it’s a win-win!
Step 3: Determine your reasonable compensation.
This is an important part of staying compliant. You can use tools like ReasonableCompCalc.com to calculate your reasonable compensation. Share these results with your accountant so they can ensure your compensation aligns with your business activities and IRS guidelines.
Step 4: Take a deep breath—don’t panic.
I know this might feel overwhelming, but remember, you can’t change the past. What you can do is take action now to move toward compliance. Each step you take is progress!
As C.S. Lewis said, “There are far, far better things ahead than any we leave behind.” Keep that in mind as you work through this—you’ve got this!
