I started an s corporation and have two members. We both recieve paychecks as employees and pay all payroll taxes for this. My question is how do we pay taxes on owner draws, do we 1099 ourselves and pay annually or do we calculate taxes and pay quarterly with our payroll taxes?
First of all, as a SHAREHOLDER in an S-Corporation, you will be receiving a K-1 document when the Form 1120S is prepared. This document will reflect any income that needs to be included on your personal income tax return. Therefore, no 1099 would be issued to your or the other shareholder. The additional tax related to the income from your K-1 can be handled in 2 ways. Either increase the amount of withholding from your (or a spouse's) paychecks to compensate for the approximate amount of increase in tax realized from the K-1. The other way is to make quarterly estimated payments. This is very basic advice and you should talk with your CPA/tax professional for a more in-depth response.
