Officer Wages
From the IRS: S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee.
The IRS has the authority to reclassify payments made to shareholders from non-wage distributions (which are not subject to employment taxes) to wages (which are subject to employment taxes). Several court cases support the authority of the IRS to reclassify other forms of payments to a shareholder-employee as a wage expense which are subject to employment taxes.
Source: IRS.gov Click HERE.
What You Need to Know:
S-Corps tend to save a great deal by avoiding employment taxes. This is known. The IRS requires that Officer’s Compensation is paid each year by the S-Corp in the form of the W-2. An S Corporation that operations for any length of time without paying reasonable compensation as officer W-2 wage runs the risk of having their S-Corp revoked, and all distributions taxed at the 15.3% going as far back as the IRS determines is appropriate.
Paying a reasonably low wage for officer’s compensation is critical. That’s where the bulk of the tax savings exists. If you pay to high of wage then you shoot yourself in the foot and over pay in wage tax. Our payroll onboarding includes a reasonable compensation analysis to get you paying an appropriate amount.
Payroll Onboarding
Now that you’ve taken the step to become an S Corporation you must ensure your compliance with officer’s compensation. RANGEVIEW setups up all of your necessary payroll accounts and delivers an Officer’s Compensation recommendation based on what you expect to make within the business this year.
Tax Planning
During tax planning we’ll compute an income tax withholding for your W-2 appropriate to get you in a tax neutral position by the time it’s we’re ready to file the tax return. Beyond that let’s look at other scenarios like retirement contributions, and/or investing in business equipment or a vehicle before the year is over! Click HERE for the Tax Planning article and the checklist to get started. Secure your confidence going into this filing season.
Book Online: Tax Planning
Pricing
Click HERE to check out our pricing for both of these services and all others.
Book a New Client Appointment
See if Rangeview Tax & Accounting is a good fit for you! We offer in-person, on-site, and telephone chats. We require a $75 deposit that is applied to future services when you come onboard to RANGEVIEW!
Book a Paid Consultation
Our paid consultation is $100 and puts you on the line with a tax professional who will answer questions that you have related to IRS Code, and Tax Strategies. Pay for your consultation, select one of the available appointments, and provide the general topic of discussion or questions that you wish to discuss.
Tax Planning
Stay on top of the upcoming filing season with a tax projection! We will collect various data including current pay stubs, expected business income, and more extraordinary situations like selling a home, rental, or business. From there we annualize the figures and run a mock tax return to get a good idea of an expected tax liability. This gives us a baseline in which we can further advise tax planning strategies that may apply.
Comments