Articles

Basics on Reasonable Compensation per the IRS

S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.

The instructions to the Form 1120S, U.S. Income Tax Return for an S Corporation, state “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.”  read on…

Reasonable salary for S corporation owners

Besides its single level of taxation as a passthrough entity, an advantage of an S corporation over a C corporation is that a shareholder’s share of the corporation’s net income is not considered self-employment earnings and therefore is not subject to self-employment tax (13.3% in 2011 and 2012). Continue Reading…

What’s a “Reasonable Salary”?

If you\’ve set up an S-corporation or a C-corporation, you\’ll need to research pay scales in your industry, because the IRS will want to know. Continue Reading…

IRS announces increased audits on small businesses in 2013

The IRS has announced eight significant audit areas for small businesses that it will focus on in the coming year. The IRS is increasingly targeting small business underreporting, which they say is responsible for 84% of the $450 billion tax gap. Continue Reading…

Tax Tips & Audit Strategies for S-Corporation Shareholders

The number one audit risk for S-Corporations is salary and wages paid to officers of the corporation. S-Corporations are also subject to hobby-loss rules. Together these are the two most significant audit risks facing S-Corporations right now. Continue Reading…

S Corporation Profits or Payday

CPAs can help their clients determine what is a reasonable salary. Continue Reading…

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