As the owner of
an S corporation, it is important that you take a reasonable salary for
the work that you do. A big concern of the IRS is the issue of whether
or not an S corporation pays reasonable compensation
to its shareholders. Often, shareholders avoid paying a salary to avoid
paying employment taxes. Instead, they take money out of the
corporation as dividends. Filing an S corporation return that reports
income but no salary is a red flag for the IRS and can trigger an audit.
Often, in these cases, the IRS recharacterizes a
portion of the S corporation's net income as wages. Courts have held
that an officer of an S corporation who performs substantial services
for the corporation and who receives remuneration in any form for those
services is considered an employee, whose wages are subject to federal
employment taxes. An S corporation cannot avoid federal employment taxes
by characterizing compensation paid to
its shareholders as distributions of the corporation's net income,
rather than wages. In such cases, the S shareholders must be treated as
an employees and the distributions will be recharacterized as wages.
In order to head off an IRS audit, it is
important for us to determine what would be a fair salary for you to
take from the corporation. By appropriately documenting the amount we
arrive at, we can defend against any attempted increase in compensation by the IRS should you ever be audited.
Mortgages and refinancing
Due to increased privacy and liability concerns, eagle tax and accounting llc does not release client information to any third party, including realtors, mortgage brokers, banks and other lenders or title companies without the express written request and consent of our client. There will usually be a charge to our client for composition, copying and/or transmission of information associated with the request.