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Winning Back-Office Strategies to Boost Your Business Agility
VIEWpoint Issue 1 | 2023
2023 Compliance Trends: Staying Ahead in an Evolving Regulatory E...
By distributing profits in the form of dividends rather than salary, an S-corporation and its owners can avoid payroll taxes on these amounts. Because of the additional 0.9% Medicare tax on wages in excess of $200,000 ($250,000 for joint filers and $125,000 for married filing separately), the potential tax savings may be even greater than it once would have been. (S-corporation dividends paid to shareholder-employees generally won’t be subject to the 3.8% net investment income tax.)
But paying little or no salary to S-corporation shareholder-employees is risky. The IRS has targeted S-corporations, assessing unpaid payroll taxes, penalties and interest against companies whose owners’ salaries are unreasonably low. To avoid such a result, S-corporations should establish and document reasonable salaries for each position using compensation surveys, company financial data and other evidence.
Do you have questions about compensating S-corporation shareholder-employees? Contact Doeren Mayhew’s tax advisors in Michigan, Houston and Ft. Lauderdale — we can help you determine the mix of salary and dividends that can keep tax liability as low as possible while standing up to IRS scrutiny.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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