100%stockholder, Owner,S Corp.

[veritas]

What it boils down to is

if there are no distributions to the shareholder on the tax return, what is the IRS going to be concerned with?

The answer is nothing. Since there are no distributions there would be nothing to reclassify as officer's wages.

[ChEAr$]

everything's relative, Josh

If so, the fact that the client's salary and the employees' salaries will not be reported on the client's 941's won't be a problem. Just take a deduction for the salaries, allocating the owner's to office salaries and the other's to salaries.

Now, you should address the issue of his salary being enough to negate his income. I still contend that a salary in excess of $20,000 - $25,000 per year is too much. But, that's a conversation you have to have with the client and determine their risk tolerance.

too much, compared to what? or whose?

[oceanlovin'ea]

Another advantage

is that they can get workers comp insurance through the payroll companies at a cheaper rate than they can get it on their own, if they are required to have it.

I have a man who uses a payroll service. I am just starting on his return so I will see how it works out.

My problem with this guy is that he set up an s corp but never put anything in the scorps name or EIN. Basically still working as a sole prop.but the payroll company pays him with a payroll check too.

We got to get that straightened out.

Linda F

[JoshinNC]

HuH??

too much, compared to what? or whose?

I thought I was pretty straightforward. More than $25,000 per year is too much for any S-Corp shareholder to take in salary.

[rosieea]

I thought I was pretty straightforward. More than $25,000 per year is too much for any S-Corp shareholder to take in salary.

I think that as S Corps audits become more frequent, a lot of shareholders in highly profitable companies will find out the hard way that $25000 in salary is not nearly enough.

[JoshinNC]

Until the IRS sets minimum salary requirements they don't have a leg to stand on

I think that as S Corps audits become more frequent, a lot of shareholders in highly profitable companies will find out the hard way that $25000 in salary is not nearly enough.

The IRS has not won a case yet where the shareholder took some salary. If they don't define a minimum (state unemployment max, 10% of profits, something) they will continue to lose.

[jerome]

The trend in audits that are currently being conducted and settled is that IRS wants reasonable salary for S corps, similar to what you would have to pay someone else to do the same work.

The fact that no taxpayer has yet to challenge this position in court simply means you and I have not yet read any court battle over this issue. That does not mean the issue hasn’t been addressed over and over again at audit, and it certainly does not mean IRS is losing. They are in fact winning since everyone so far who has been picked on by IRS settles before taking it to court.

I want someone to refuse to settle and take this to court so that the rest of us can have some guidance. When they come to audit all of your S corp clients, Josh, stick to your guns and take IRS to court so the rest of us will know what we can get away with.

[JoshinNC]

There have been cases that have gone to court

The trend in audits that are currently being conducted and settled is that IRS wants reasonable salary for S corps, similar to what you would have to pay someone else to do the same work.

The fact that no taxpayer has yet to challenge this position in court simply means you and I have not yet read any court battle over this issue. That does not mean the issue hasn’t been addressed over and over again at audit, and it certainly does not mean IRS is losing. They are in fact winning since everyone so far who has been picked on by IRS settles before taking it to court.

I want someone to refuse to settle and take this to court so that the rest of us can have some guidance. When they come to audit all of your S corp clients, Josh, stick to your guns and take IRS to court so the rest of us will know what we can get away with.

I'm not in the office now, so I don't have cites available, but I will post them tomorrow. In every case, if the officer took a salary, the IRS lost.