Delayed Compensation

In the early stages of your business, you may be investing in the business first and paying yourself later on.

In this instance, it's okay to minimize salary and document your undercompensation for that particular year by noting in your corporate minute books the complete details of why you took less pay than you earned. Also note that you elected to defer or delay payment until such time as the company can afford to disburse what it owes you. This will help defray contentions of excess compensation in later years.

There is almost never a problem with this method as long as you:

• Establish what is "reasonable compensation" for an individual employed at your level, in your industry, and in your area of the country;
• Document the process at the time you elected to forego compensation in the corporate minutes--including what "reasonable salary" would have been, what you were paid and what amount was deferred; and
• Documenting the payments when they were made to you and how the corporation characterized them (as a bonus or as a dividend or as a significant raise in salary

Start-up is a cash-critical phase and even the IRS understands that. And this technique will help you in the event that you decide to take in another shareholder down the road. The debt of the company to you for services already rendered will be duly recorded and will not be in doubt.