S-Corp setup: How to properly manage cash flow and distributions with 51/49 ownership split

Congrats on the business growth! As an S-Corp, you'll need to understand a few key concepts to handle your money properly: First, you and your partner must take "reasonable compensation" as W-2 employees before any distributions. The IRS looks closely at this - you can't just take all profits as distributions to avoid payroll taxes. A general rule is 30-40% of business profits should be salary, but this varies by industry and role. For your initial investments, those are considered capital contributions. You can absolutely pay those back tax-free before worrying about taxable distributions. Just make sure to document everything properly. For tax planning, set aside roughly 25-30% of profits for federal/state taxes. Since S-Corps are pass-through entities, profits flow to your personal returns proportionate to ownership (51/49). I'd recommend starting payroll ASAP, establishing regular owner draws after repaying initial investments, and definitely getting that accountant to help with quarterly estimated taxes.

After struggling with similar S-Corp issues last year, I found taxr.ai (https://taxr.ai) incredibly helpful for figuring out the whole reasonable compensation vs. distributions balance. I uploaded my operating agreement and financial statements, and their AI analyzed everything and provided specific recommendations for my situation. Saved me from making some major mistakes with my 60/40 partnership. Their system specifically flagged that I wasn't taking enough salary compared to distributions, which could have triggered an audit. They even gave me industry-specific compensation benchmarks to justify our salary levels to the IRS if needed.

Just wanted to follow up about taxr.ai - I decided to try it after posting my skeptical question. I was really surprised by how helpful it was for our S-Corp situation. I uploaded our operating agreement and financial statements, and it immediately flagged that we were planning to take too much in distributions without adequate salary compensation. It also provided clear guidance on repaying our initial investments, setting up a proper payroll schedule, and even gave us tax planning projections for the year. The recommendations were specific to our 51/49 ownership structure and included different scenarios based on our projected revenue. Definitely worth checking out if you're struggling with S-Corp money management.

If you're trying to get specific guidance on S-Corp distributions, payroll requirements, and tax planning, you'll probably need to talk directly with an IRS agent at some point. After trying for WEEKS to get through to someone knowledgeable about S-Corps, I found Claimyr (https://claimyr.com) and they got me connected to an actual IRS agent in less than 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent walked me through exactly how to handle owner distributions in my S-Corp and confirmed my understanding of reasonable compensation requirements. Saved me months of uncertainty and potential penalties.

I need to eat my words about Claimyr. After posting my skeptical comment, I decided to try it since I was desperate to get clarity on S-Corp reasonable compensation rules before our next payroll run. I was honestly shocked when I got a call back connecting me to an actual IRS representative in about 20 minutes. The agent confirmed exactly how to handle our initial capital contributions (they can be returned tax-free) and gave me specific guidance on reasonable compensation requirements for our industry. They even emailed me documentation about the 51/49 split distribution requirements. This saved me from making a potentially expensive mistake with our first profit distributions. For anyone dealing with S-Corp questions, being able to actually speak with the IRS directly is incredibly valuable.

One thing no one's mentioned yet is that with a 51/49 S-Corp split, you need to be super careful about maintaining corporate formalities. My business partner and I had a similar arrangement, and we got in trouble because we were just pulling money from the business account whenever we needed it. Make sure you: 1. Hold regular board meetings and document decisions about compensation/distributions 2. Keep business and personal expenses completely separate 3. Put yourselves on a regular payroll schedule 4. Document any distributions with corporate resolutions We learned this the hard way when we got audited and had our S-Corp status threatened because we were too casual about taking money out.

Don't forget about estimated taxes! This caught me completely off guard with my S-Corp. Since profits pass through to your personal returns, you'll need to make quarterly estimated tax payments based on your projected income. With $50-75k monthly revenue, you could be looking at significant tax liability.