S CORP OWNER COMPENSATION

[Lee B]

Excerpt from the TIGTA Report:

"For its report, TIGTA analyzed all the S corporation returns received by the IRS between 2016 and 2018, looking for returns where the profits exceeded $100,000, there was a single shareholder, and no officer’s compensation was claimed. It found the IRS didn’t select 266,095 of such returns for a field examination. The analysis found that single-shareholder owners made profits of $108 billion and took $69 billion in the form of a distribution, without reporting they received officer’s compensation for which they would have needed to pay Social Security and Medicare taxes. TIGTA estimated 266,095 tax returns may not have reported nearly $25 billion in compensation, allowing business owners to avoid paying approximately $3.3 billion in FICA taxes."

Well I guess Audit Roulette still works

[Gail in Virginia]

Wow.  And for how many years have we been hearing that IRS is looking for sole shareholders to take reasonable compensation, telling our clients that,  and yet never seeing any evidence that  they are auditing for that?  I guess they weren't really - just trying to scare more honest/frightened  people into paying up voluntarily while those willing to take their chances  continued to get by. 

[Abby Normal]

Well, in the big picture, you are increasing your Social Security benefits by taking a reasonable salary. I've had people look at their Social Security earnings in the 50s or later and panic because they haven't had adequate Social Security earnings.

[DANRVAN]

On 8/31/2021 at 4:32 PM, Abby Normal said:

because they haven't had adequate Social Security earnings.

Also applies to Schedule C and 1065 filers who have reduced their tax liabilities over the years with the magical section 179 deduction.

[Medlin Software, Dennis]

If the unexpected (or the inevitable) happens, low SS numbers affects survivors, non-working spouses, disabled dependents, etc.  Hugely complicated issue, but if one believes the eagle will never let SS founder, then it is a factor too often ignored.  Personally, my area of worry and frequent discussion is not what happens to the wage earner, but to think about their dependents, especially disabled dependents.  A child on SSI can switch to SSDI based on the parent, which if managed to optimize earnings (strive for SS limit each year) can be a life changing amount for the recipient.