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I have enough expenses to show, to pay very little to no tax on my corporate return.
S corps are not taxed except on certain capital gains and non-passive income. Therefore, odds are you shouldn't be paying tax on your corporate return no matter how much you're making.I have enough expenses to show, to pay very little to no tax on my corporate return.
And just one more, for good measure:
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One of the goals of the IRS is to determine if S-corporation owners are paying themselves reasonable wages before paying dividends. Before paying employment-tax-free dividends, it's expected that officers in an S corporation will first receive an appropriate wage for their services to the corporation.
For example, suppose the owner of an S corporation worked full-time in the company and paid himself $90,000 in dividends, without taking any wages. That's a no-no. The IRS expects to see a reasonable salary before dividends are paid. If the entrepreneur had paid out this money as salary, it would be subject to about $14,000 in employment taxes. Of course, it's not necessary to pay all the $90,000 in salary. It depends upon what's considered reasonable. For example, maybe a salary of $45,000 could be paid and $45,000 taken out as dividends. That would amount to a tax savings of about $7,000. And, that could be fully legitimate.
Again, I'm not saying anyone is doing anything wrong. But if you're driving a truck and paying yourself $10,000 in wages and $20,000 in dividends or distributions, you wouldn't survive an audit. Many less than scrupulous accountants will tell their clients that this is fine because they know that the odds of getting audited are slim and the more they save their client the happier the client will be. Just remember, if you ever are audited, it's not your accountant that pays the penalty. One of the goals of the IRS is to determine if S-corporation owners are paying themselves reasonable wages before paying dividends. Before paying employment-tax-free dividends, it's expected that officers in an S corporation will first receive an appropriate wage for their services to the corporation.
For example, suppose the owner of an S corporation worked full-time in the company and paid himself $90,000 in dividends, without taking any wages. That's a no-no. The IRS expects to see a reasonable salary before dividends are paid. If the entrepreneur had paid out this money as salary, it would be subject to about $14,000 in employment taxes. Of course, it's not necessary to pay all the $90,000 in salary. It depends upon what's considered reasonable. For example, maybe a salary of $45,000 could be paid and $45,000 taken out as dividends. That would amount to a tax savings of about $7,000. And, that could be fully legitimate.
Many who have posted may be in compliance simply because their numbers happen to add up. But the understanding of the IRS rules as explained are simply incorrect. But hey, the odds of being audited are small so roll the dice. Pass-through entities, which includes S corps, partnerships, and LLC's, have a much lower audit rate than sole proprietors.