S-Corp owners take low salaries so they can receive the bulk of the corporation’s profits as dividends, which are not subject to payroll taxes (Social Security & Medicare tax). IRS and the courts balk at this practice. In a recent case, a CPA (who should have known better) took a $24,000 salary in a year when his share of the S-Corp’s profits was around $200,000. A district court agreed with the with the IRS that his pay was unreasonably low and ruled that the dividends are properly reclasified as salary and subject to payroll taxes.
|It’s Not What You Earn, But What You Keep, After Taxes.™|