Accounting question - we have elected S-corp election. What is the split of payroll vs. owner draw that puts us at best tax advantage.? Thanks..Sharon
Speak with an accountant who has expertise on S corporation salary. There is no best tax advantage answer. It depends on your level of risk aversion. If you provide a very minimal salary you risk an IRS audit and they are getting much more aggressive on S corporation salary claims.
Only an accountant or tax attorney with expertise in this area can provide an answer after review of your company, your circumstances, and your risk tolerance.
This answer is for informational purposes only and is not legal advice regarding your question and does not establish an attorney-client relationship.
This is a complicated issue, and I agree with Attorney Morillo that you should hire a Tax Attorney or CPA to help you determine the shareholder compensation. I have provided a link below on the IRS' position and to some of the considerations. Again, you should contact a Tax Attorney or CPA to help you determine an adequate amount.
Andrew J. Wyman
Salaries have to be "reasonable." This will take into account factors such as:
1. What it would cost to hire a comparable person in a management position
2. What does somebody that lives in your area earn for such a job
But there are many factors and that is why you need to see an accountant. Be wary of ANY standard that uses the word "reasonable."
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