S Corps are corporate entities through which the income and or losses of the entity pass through to its owner’s personal income tax return. It is estimated that 100% of the shares of approximately 70% of small businesses incorporated as S Corps are owned by only “one person”. In years past, officer shareholders of S corps received “unreasonably” low salaries in order to “reduce” FICA and Medicare payroll taxes. Some shareholder/employees of S corps with significant earnings were receiving little or no salary until, in 2005, IRS stepped up enforcement of the issue. In 2008, IRS published Wage Compensation for S Corps that states that “S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee.
Please see full publication below for more information.
