How Winery Owners Should Pay Themselves: Partnership vs. S-Corp Compensation
One of the most common questions winery owners have is how to structure their compensation.
The right approach depends on your business entity type—whether you operate as a partnership or an S-corporation (S-corp). Each structure has different tax implications, so understanding how payments work can help you optimize your income and tax burden.
Paying Yourself as a Partner in a Winery
If your winery is structured as a partnership (LLC taxed as a partnership or a general/limited partnership), you typically have two ways to receive money: guaranteed payments and distributions.
1. Guaranteed Payments
These are pre-agreed payments made to a partner for services rendered or capital invested, regardless of the business’s profits.
They function similarly to a salary, ensuring a partner gets paid for their work.
Tax Treatment:
Deductible as a business expense for the partnership.
Taxed as ordinary income to the partner and subject to self-employment tax (15.3%).
Example: A winery partner receives $5,000 per month for managing daily operations, even if the winery breaks even.
2. Distributions
These are payments made to partners based on their ownership percentage and the winery’s profits.
Unlike guaranteed payments, they are not subject to self-employment tax but are dependent on the winery’s financial performance.
Tax Treatment:
Generally tax-free up to the amount of the partner’s basis (investment) in the partnership.
Any amount exceeding the basis is taxed as capital gains.
Example: If a partner owns 50% of the winery and the business earns $200,000 in profit, the partner may receive a $100,000 distribution.
Key Considerations for Partnerships:
Guaranteed payments offer stability but come with higher tax costs.
Distributions are more tax-efficient but depend on profitability.
Partners cannot be W-2 employees.
Paying Yourself as an S-Corp Owner
If your winery is structured as an S-corporation, the compensation structure changes. Unlike partnerships, S-corp owners can be both employees and shareholders, meaning you can receive a salary (W-2 wages) and distributions from profits.
1. W-2 Salary
S-corp owners must take “reasonable compensation” for the work they perform.
The IRS requires this to prevent abuse of self-employment tax savings.
Tax Treatment:
Salary is subject to payroll taxes (Social Security & Medicare at 15.3%, split between employer and employee).
The business can deduct payroll expenses.
Example: A winery owner working full-time as the winemaker takes a $70,000 salary.
2. Distributions (Dividends)
Once a “reasonable salary” is taken, remaining profits can be distributed to owners as dividends.
These distributions are not subject to self-employment tax, making them a tax-efficient way to take additional income.
Tax Treatment:
Distributions are taxed at the owner’s personal income tax rate but avoid payroll taxes.
Must not exceed the owner’s basis in the S-corp.
Example: After taking a $70,000 salary, a winery owner takes an additional $50,000 as a tax-efficient distribution.
Key Considerations for S-Corps:
Must pay reasonable compensation to avoid IRS scrutiny.
Distributions provide self-employment tax savings but require careful tax planning.
Payroll administration is required.
Which Structure is Best for Your Winery?
The choice between a partnership and an S-corp depends on multiple factors:
Partnerships work well for wineries with multiple owners who actively contribute and want flexibility in payments.
S-corps can reduce self-employment taxes but require proper payroll management and compliance.
Key Tip: Work with an accountant who understands winery finances to ensure your compensation structure aligns with your business goals and tax strategy.
If you’re unsure which structure is best for you, let’s chat! Simply head over to our Contact page to get in touch.🍷
