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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 pa
by gamblor956 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.
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.