3 ms·
Your FUD isn't needed. This is a perfectly reasonable approach. You're both an employee and an owner of the Corp. And are entitled to benefits on each side.
by aantix 5y ago
Your FUD isn't needed.
This is a perfectly reasonable approach.
You're both an employee and an owner of the Corp. And are entitled to benefits on each side.
Dividend distributions are a common means of compensation to share holders. You are an investor in the company.
Your usage of "scheme" is interesting and probably one of the many reasons why people like Bezos bring up so much vitriol when discussing taxes.
I see this approach as a perfectly legitimate, thoughtful structure to the issue of division between employee and ownership compensation. You see it as a "scheme".
- gamblor956 5y agoGenerally, if your S-Corps income exceeds the FICA threshold (currently $142,800), you must first pay yourself $142,800 as FICA-taxable salary before you can pay yourself a dividend. If your one-person S-Corp doesn't reach that level of income, all of its earnings should be paid as a salary subject to FICA. Also...S-corps don't pay dividends. I don't know who told you that. S-Corps are pass-through entities, so the portion of income paid to an owner other than as a salary retains the character it had when the S-corp received it, meaning that ordinary income to the S-Corp...is also taxable ordinary income to the owner. Importantly, this taxation applies whether the S-Corp actually send the earnings onward to its owners. S-Corps, like partnerships, may then distribute this already-taxed income to its owners then or at any point in the future, and it will be tax free, because the owners have already paid taxes on it.
- aantix 5y ago>Generally, if your S-Corps income exceeds the FICA threshold (currently $142,800), you must first pay yourself $142,800 as FICA-taxable salary before you can pay yourself a dividend. Source? >If your one-person S-Corp doesn't reach that level of income, all of its earnings should be paid as a salary subject to FICA. Source?
- aantix 5y ago>Generally, if your S-Corps income exceeds the FICA threshold (currently $142,800), you must first pay yourself $142,800 as FICA-taxable salary before you can pay yourself a dividend This isn't supported by Sean McAlary LTD, Inc. v. Commissioner, T.C. Summary Opinion 2013-62. "The IRS, as it’s wont to do, argued that McAlary was not reasonably compensated, and once again, the Service took a scientific approach. Utilizing the same engineer employed by the IRS in JD & Associates and Watson, the IRS determined that $100,000 of the $240,000 distribution represented McAlary’s “reasonable” compensation." https://www.forbes.com/sites/anthonynitti/2013/08/12/s-corporation-shareholder-employee-loses-reasonable-compensation-case-sun-rises-in-east/?sh=39fe68623349 https://www.forbes.com/sites/anthonynitti/2013/08/12/s-corpo...
- gamblor956 5y agoYour citation supports my point. The $142k is the inflation adjusted FICA salary threshold, which was lower when this case was heard back in 2013.