Scorp And Irs

[BOB W]

I JUST REV'D THIS EMAIL. Nothing new but it could mean heavier concentration in this area coming up...............?????????

S Corporation Officers Must Treat Payments For Services As Taxable Wages, IRS Says

Subchapter S corporations should treat payments for services to officers as wages and not as distributions of cash and property or loans to shareholders, the Internal Revenue Service said in a fact sheet (FS-2008-25) on wage compensation for S corporation officers.

IRS said corporate officers are specifically included in the definition of employee for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and federal income withholding tax. “The Internal Revenue Code establishes that any officer of a corporation, including S corporations, is an employee of the corporation for employment tax purposes,” IRS stressed in the recently released fact sheet, which was dated August 2008.



A copy of the fact sheet may be found at the following weblink: http://www.irs.gov/newsroom/article/...200293,00.html

[JG EA]

The key here is treating distributions/loans/etc. as "their compensation ". The buzz on the horizon is that all distributions will be viewed as wages for service S-corps. This is not the case yet, but one of the things to watch out for. But reasonable compensation is the important thing still.

The seminar I just took said this is why so many pay themselves the max SS rate and then the battle would only be over Medicare. (They make more money than where I live.) I've been watching the SUTA rates for the area and what the other people employed make (not more than the boss/shareholder who also works in the thier business). Also, I do not ever, ever set the rate or the amount for the shareholders. It is their decision. (But, I do tell them if it doesn't seem like enough).

[geekgirldany]

I use to tell people about becoming a S-Corporation that it really doesn't help them any until they make over $50,000 net. Depending on the business they could do $40,000 salary and $10,000 distributions. I always used that as an example. In the link provided it says the following:
There are no specific guidelines for reasonable compensation in the Code or the Regulations. The various courts that have ruled on this issue have based their determinations on the facts and circumstances of each case.

Some factors considered by the courts in determining reasonable compensation:

Training and experience
Duties and responsibilities
Time and effort devoted to the business
Dividend history
Payments to non-shareholder employees
Timing and manner of paying bonuses to key people
What comparable businesses pay for similar services
Compensation agreements
The use of a formula to determine compensation
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What I have been doing is looking at Salary.com for some guidance on salaries for various positions in a company. But I suppose the IRS is saying if they are an Officer then any payments are to be considered payroll.

I've got one customer that really gives me a hard time about his salary. I just finally told him whatever he thinks his salary should be he can set it. He gave a fairly reasonable amount. I believe it could be higher.... but it will be on him.