Fenner, Melstrom & Dooling PLC
Accountants who think like business owners.
We are your strategists, advisors and confidants.
We treat your business like our own: spending time at your facilities, participating in your planning and assigning senior professionals to guide you.
Our ultimate goal is to help you make more money. Working with us, you will learn to increase earnings and keep more for yourself.
Does the IRS Think Your Salary is Appropriate?
Reasonable Compensation for S Corporation Owners
For regular C corporations, “reasonable compensation” can be a troublesome tax issue. The IRS doesn’t want shareholder executives to inflate their deductible salaries while minimizing the corporation’s nondeductible dividend payouts.
For S corporation owners, the opposite is true. If owner employees take what the IRS considers “unreasonably low” compensation, the IRS may recast the earnings to reflect higher payroll taxes, along with interest and penalties. “Unreasonably low” may be a salary to the owner of a profitable company that is less than the social security wage limit. Paying above the social security wage limit could decrease the risk of IRS audit.
One pocket to pick
Eligible corporations that elect S status avoid corporate income taxes. Instead, all income flows through to the shareholders’ personal tax returns.