I have a client (US Citizen) who is a 50% shareholder in a recently founded S Corp registered in California, but residing in Turkey. He is a registered resident of South Dakota since it has no state tax. He is active and selling remotely for the business and would like to be compensated just like his partner in California. Any thoughts on what is the best (most tax effective) way for the company to pay him? Here are the questions/options that come to mind,
1. If we keep it simple and have him on regular payroll, he will have to pay CA taxes, which he doesn't want.
2. if we run his payroll as a SD resident then does the company need to register in SD? Except requiring to file payroll returns in SD, what will be the other implications of this for the S Corp?
3. Can we pay him as 1099? Can a shareholder be on 1099? This would subject him to Self Employment taxes, which would make him pay more payroll tax than his partner.
4. Any thing else that I am missing?