Need help coming up with a reasonable S corporation salary? Struggling to balance the “old rules” for S corporations with the “new rules” that incorporate the Sec. 199A “pass-thru entity” tax deduction?
We’ve got a great resource that can help you set a salary that annually saves thousands in taxes per shareholder and deals with the new, complex reality that Sec. 199A creates: A roughly 40pp monograph (cost $45) that provides you with all the information you need to set a reasonable salary that still saves income and payroll taxes.
More Information…
S corporations can save their owners enormous amounts of tax. How? By correctly setting salaries for shareholder-employees and thereby reducing payroll taxes. But the process is tricky.
Set the salary too low and you run the risk of an IRS examination. That’s bad. In an audit, a too-low salary means not only that you will be required to pay back the S corporation tax savings you thought you were getting, but it also means you’ll be assessed severe penalties.
Set the salary too high, however, and you may needlessly overpay your payroll taxes. You may also significantly reduce your Sec. 199A “pass-thru entity” deduction. In combination, the lost tax savings from extra payroll taxes and missed Sec. 199A deductions could easily be a million-dollar mistake over the course of your business’s life.
To help you make better decisions about setting your S corporation salary, we’ve prepared a short, easy-to-understand monograph, “Setting Low Salaries for S Corporations.”
Written in plain, everyday language, this roughly 40-page document explains how to save thousands of dollars in annual taxes with your S corporation–and all in a way that minimizes both the chance that your S corporation return will be examined and the chance your S corporation salary will be rejected by the Internal Revenue Service.
Table of Contents
- Introduction
- How Low S Corporation Salaries Save Payroll Taxes
- When Low S Corporation Salaries Don’t Save Money
- Gotcha #1: Extra Fees and Out-of-pocket Expenses
- Gotcha #2: State Income Taxes
- Gotcha #3: Multiple Shareholder-employees
- Summarizing what the “Gotchas” Mean in Practice
- How S Corporations Commonly Set Salaries
- Average S Corporation Salaries
- S Corporation Salaries Across Different Size Businesses
- S Corporation Salaries Across Different Industries
- Treasury Inspector General Pronouncements
- What the IRS and Courts Say On-the-record
- What the Internal Revenue Service Says Off-the-record
- One-Man S Corporation Salaries
- American Job Creation and Closing Tax Loopholes Act of 2010
- When There Are Other Employees and Capital Investments
- Unofficial Minimum and Safe Harbor Salary Amounts
- Sec. 199A Pass-thru Entity Deduction Complication
- How Sec. 199A Deduction Works
- How Wages Impact Sec. 199A Deduction
- Who Doesn’t Need to Worry about Sec. 199A Deduction
- Who Should Consider Bumping Wages for Sec. 199A Deduction
- The Optimum W-2 Wages amount for Pass-thru Entity
- Ten Tips for Setting S Corporation Salaries
- What Knowledgeable Tax Practitioners Often Recommend
- Applying the Rules in Practice
- Example #1: The One-Person Service Business that Makes $80,000 Annually
- Example #2: The High-priced Professional that Makes $500,000 Annually
- Example #3: The Semi-inactive S Corporation Making $20,000 Annually
- Example #4: The Traditional Small Business With Employees and/or Assets
- Conclusion
