IRS Feasts on Low S-Corp Salaries

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.

PostHeaderIcon It’s Not What You Earn, But What You Keep, After Taxes.™

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