4 ms·

Reasonable to the IRS just means you aren't giving yourself a $300 salary and saying that's payment. Calculate general cost of living and use that number. You

Reasonable to the IRS just means you aren't giving yourself a $300 salary and saying that's payment. Calculate general cost of living and use that number. You can justify that number to the IRS.

jhancock 18y ago
agreed. Jobs, etc. can afford to defend their position of $1 a year. You cannot. It doesn't have to be a high number as base salary. It is very reasonable to pay yourself dividends in quarter or annual bonus (your still taxed on this but can be a bit better). The max social security cutoff is around $102k these days? Not a bad high mark. Assuming your living cost is under $60k, you can probably justify $75k and not lose any sleep. Those are rough guesses, you'll have to find your own comfort levels. Don't try to dodge the taxman unless you can afford it. In the mid-90s, I had the IRS come after me. Turned out to be a computer error on their part, but that didn't keep them from shutting off all my bank accounts without notice. They turned back on my accounts within a week or so but I spent around $5k and 6 months to a top accountant to prove to the IRS that they were wrong. I even ended up with an apology letter from the IRS. It wasn't a form letter either, I doubt they a form for an apology ;). These buys are tough man, don't mess with the revenue service!!
brentb 18y ago
I would highly recommend against just paying yourself just cost-of-living. A low salary and high dividend is a big-time audit flag for the IRS... if your salary AND your dividends are low, then there's no problem. You state that your company is profitable. In this case, if you pay yourself a low salary and get audited, the IRS can (and will) retroactively adjust your salary to whatever THEY feel is reasonable and comparable for a CEO of a successful small company. Then you will owe back taxes, penalties and interest on whatever amount they determine you cheated them out of. The process isn't very democratic and getting audited is a HUGE pain, so I'd recommend going with something reasonable in the 100K range to avoid scrutiny.

Reasonable to the IRS just means you aren't giving yourself a $300 salary and saying that's payment. Calculate general cost of living and use that number. You can justify that number to the IRS.

jhancock 18y ago

agreed. Jobs, etc. can afford to defend their position of $1 a year. You cannot. It doesn't have to be a high number as base salary. It is very reasonable to pay yourself dividends in quarter or annual bonus (your still taxed on this but can be a bit better). The max social security cutoff is around $102k these days? Not a bad high mark. Assuming your living cost is under $60k, you can probably justify $75k and not lose any sleep. Those are rough guesses, you'll have to find your own comfort levels. Don't try to dodge the taxman unless you can afford it. In the mid-90s, I had the IRS come after me. Turned out to be a computer error on their part, but that didn't keep them from shutting off all my bank accounts without notice. They turned back on my accounts within a week or so but I spent around $5k and 6 months to a top accountant to prove to the IRS that they were wrong. I even ended up with an apology letter from the IRS. It wasn't a form letter either, I doubt they a form for an apology ;). These buys are tough man, don't mess with the revenue service!!

brentb 18y ago

I would highly recommend against just paying yourself just cost-of-living. A low salary and high dividend is a big-time audit flag for the IRS... if your salary AND your dividends are low, then there's no problem. You state that your company is profitable. In this case, if you pay yourself a low salary and get audited, the IRS can (and will) retroactively adjust your salary to whatever THEY feel is reasonable and comparable for a CEO of a successful small company. Then you will owe back taxes, penalties and interest on whatever amount they determine you cheated them out of. The process isn't very democratic and getting audited is a HUGE pain, so I'd recommend going with something reasonable in the 100K range to avoid scrutiny.