Our Setting Low Salaries for S Corporations monograph (price $100) can help. In just under a 100 pages of plain language, it provides rich, detailed information and a straightforward methodology for setting shareholder-employee salaries.
The Setting Low Salaries for S Corporations monograph includes two updates: One update for Sec. 199A proposed regulations the IRS has promised it will provide soon, and one update for whenever the IRS next updates its S corporation salaries data.
An S corporation typically saves each shareholder around $8,000 to $10,000 a year in taxes. Which is great.
But problems exist. No specific guideline exists for setting S corporation salaries, for example.
Further, the new Sec. 199A “qualified business income” deduction only complicates matters.
Finally, the S corporation gambit (paying lower salaries to lower payroll taxes) causes tax accountants and their clients to bear risk. S corporations, shareholders and tax accountants who set shareholder-employee salaries too low risk IRS audits and tax penalties.
To look at just one part of that risk, in a worst-case scenario, the preparer may face a $5,000 penalty.
Thus, our monograph.
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Table of Contents
Packed full of clear explanations with dozens of real-life examples, the Setting Low S Corporation Salaries monograph breaks down its subject matter into ten, easy to digest chapters:
- Chapter 1 – How S Corporations Save Payroll Taxes. A quick review of how the savings work including a subtlety most S corporation owners don’t know.
- Chapter 2 – Reviewing the Law. An explanation of the actual statute, regulation and revenue rulings that provide the loophole.
- Chapter 3 – Common Subchapter S Salary Practices. IRS data about what S corporations actually pay their shareholder-employees.
- Chapter 4 – Single Shareholder Situations. When and how a small sole proprietor can maybe make the S corporation gambit work.
- Chapter 5 – The Sec. 199A Deduction Complication. A discussion of how the Sec. 199A deduction works for an S corporation and how to resolve conflicts between the two tax laws.
- Chapter 6 – Avoiding Unreasonable Distributions. A sidebar about the importance of also thinking about shareholder distributions.
- Chapter 7 – Developing Reasonable Compensation Amounts. An eight-step work plan for setting reasonable compensation amounts for shareholder-employees.
- Chapter 8 – Practitioner Case Studies. Practical real-life examples showing how to optimize shareholder-employee salaries in common situations.
- Chapter 9 – Risky Practices and Danger Zones. Discussions of common, dangerous S corporation shareholder-employee compensation mistakes.
- Chapter 10 – Winning the “Reasonable Compensation” Argument. A step-by-step plan for winning an IRS audit of S corporation compensation.
- Appendix A – Revenue Ruling 59-221. The key primary source that opened the loophole.
- Appendix B – Revenue Ruling 74-44. The revenue ruling that the IRS uses to blow up bad S corporation salaries.
- Appendix C – Relevant Portions of H.R. 4213. The law that almost passed and which applies to single-shareholder, single-employee S corporations.
- Appendix D – Example Client Letter. A boilerplate letter accountants and attorneys can use for their own client mailings.
- Appendix E – Example Client Email. A boilerplate email.
More Information About Author
CPA Stephen L. Nelson is the managing member of Seattle-area CPA firm that specializes in serving privately held companies with multi-state and international operations as well as their owners. A CPA for three-plus decades, Nelson holds an MBA in finance from the University of Washington and an MS in tax from Golden Gate University. A former adjunct tax professor at Golden Gate University, he is also the author of numerous reference books including the bestselling QuickBooks for Dummies and Quicken for Dummies titles.