Scenario: An individual owns 100% of S-Corp A and draws no salary during the year Same individual owns 51% of S-Corp B and draws weekly salary (annual salary exceeds the social security earnings maximum)
S-Corp A had a net loss during a 2-3 year period a few years ago and S-Corp B has generally always been profitable. Currently, both are profitable.
Individual took a large distribution from S-Corp A and took a small distribution (small as compared to compensation for the year) from S-Corp B.
Individual is an officer of both entities and active in both entities.
Is the IRS' position that S-Corp shareholder should receive compensation from S-Corporations based on the fact that distributions (and the pass-through income from the K-1) are not subject to payroll taxes?
I recall seminars / continuing ed suggesting that at least the annual social security limit should be paid via payroll from S-Corps to the shareholder.
When same individual is involved in more than one S-Corp, it appears silly that each S-Corp has to pay the employer's share of social security/medicare taxes to the government from both companies. Said individual will never realize any benefit from this. And, maybe that is just the way it is?
Said individual, of course, does not need (financially speaking) a paycheck from both S-Corps - and maybe that is more of a reason to take a paycheck?
With regards to S-Corp A, I think the large distribution makes the fact that there is no salary paid a problem - do others concur?
Any other thoughts or suggestions from this group that would support a reason to NOT take a salary from S-Corp A in any given year given above facts & circumstances?
Also, please feel free to provide any resources that others have found helpful.
Thanks! Cathy