Strategies that motivate management to listen to the Tax Department is what we will address in this week’s post. Although there are dozens of topics I could address, this post will address a couple of challenges faced by most anyone leading a tax organization when it comes to compensating your tax team. This post will also provide solutions; these are solutions intended to make your job leading a tax organization easier. Although I know better than to put “ Head of Tax” and “Easy” in the same line, leading a tax organization is one of the toughest jobs out there today. Read more
Tag Archive for Compensation
A shareholder-employee’s compensation from an S corporation is often subject to IRS scrutiny because S corporation flow-through income enjoys an employment tax advantage over that of sole proprietorships, partnerships and LLCs. This advantage finds its genesis in Revenue Ruling 59-221, which held that a shareholder’s undistributed share of S corporation income is not treated as self-employment income. In contrast, earnings attributed to a sole proprietor, general partner or many LLC members are subject to self-employment taxes.
As employment tax rates have climbed, this advantage of operating as an S corporation has become magnified. Because S corporation income is not subject to self-employment tax, there is tremendous motivation for shareholder-employees to minimize their salary in favor of distributions, which are also not subject to payroll or self-employment tax.
So how does a taxpayer or more likely his advisor determine what is “reasonable compensation” for an owner/employee of an S Corporation? Read more