Officer Salary

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
Reply to
Cathy
That's at least part of the reason.
Sorry, but if the individual/shareholder performs services for the S- corp, he must be reasonably compensated for the work he does. Many rules concerning taxes seem silly to those required to pay.
If he doesn't need/want a paycheck, he should perform no services and hire someone else to do that work.
It's only a problem if he performs services for the corporation. It's all about reasonable compensation. What would he have to pay to hire someone to do his job?
Exactly.
Reply to
Stuart O. Bronstein

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