{"id":363,"date":"2012-01-15T17:19:09","date_gmt":"2012-01-15T17:19:09","guid":{"rendered":"http:\/\/ua-cpas.com\/blog\/?p=363"},"modified":"2012-01-15T17:19:09","modified_gmt":"2012-01-15T17:19:09","slug":"s-corp-owners-wages","status":"publish","type":"post","link":"https:\/\/www.ua-cpas.com\/blog\/index.php\/2012\/01\/15\/s-corp-owners-wages\/","title":{"rendered":"S-Corp Owners- Take a Raise to Keep the IRS Away"},"content":{"rendered":"
\n
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A popular income trick played by S-Corp owners is to take a<\/span><\/span><\/div>\n

<\/p>\n

significantly deflated salary, and then collect large profit distributions. This<\/div>\n
tactic lowers tax liability because income collected as salary is subject to a<\/div>\n
2.9% Medicare tax and some is subject to a 12.4% Social Security, or FICA, tax.<\/div>\n
By shifting that income to a profit distribution one can sidestep those taxes.<\/div>\n
Recent IRS statistics have caused an increased scrutiny of S-Corp owners\u2019<\/div>\n
salaries. Over the past decade and a half, while executive paychecks exploded,<\/div>\n
the salaries of S-Corp owners declined as a percentage of total income, from<\/div>\n
52% in 1995 to 39% in 2007. During the same period, S-Corp income doubled,<\/div>\n
while salaries increased only 26%. While many think that the IRS can only force<\/div>\n
someone to take a salary decrease, a recent district court case showed that one<\/div>\n
can also be forced to increase one\u2019s salary. In David E. Watson P.C. vs. U.S.,<\/div>\n
Mr. Watson, a CPA with 20 years of experience, took a salary of $24,000 in 2002<\/div>\n
and 2003, and made profit distributions of $203,651 and $175,470, respectively.<\/div>\n
Recent graduates with no experience earned an average of $40,000 at that time.<\/div>\n
The court determined that a fair salary for Mr. Watson would have been $91,044,<\/div>\n
and ordered him to pay back the nearly $20,000 he saved in payroll taxes as<\/div>\n
well as interest and penalties. What S-Corp owners have going for them,<\/div>\n
however, is that fair salary is a very gray area. While Mr. Watson\u2019s salary was<\/div>\n
low enough to attract the attention of the IRS, it would be difficult to prove<\/div>\n
that a more appropriate salary is too low, even if it is on the lower end of<\/div>\n
the spectrum. <\/span> <\/span> <\/span> <\/span><\/div>\n

<\/span><\/span><\/p>\n

<\/span><\/div>\n

<\/span><\/p>\n

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<\/span><\/div>\n","protected":false},"excerpt":{"rendered":"

S-Corp owners who take low wages in order to reduce Medicare and FICA taxes are under IRS scrutiny. <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4,14,20,23,24],"tags":[177],"class_list":{"0":"post-363","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-small-business-forum","7":"category-medical-practices","8":"category-staffing-agencies","9":"category-taxes","10":"category-taxes-medical-practices","11":"tag-s-corp-taxes","12":"entry"},"_links":{"self":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/363","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=363"}],"version-history":[{"count":0,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/363\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=363"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=363"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=363"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}