525 N Cascade Ave., Suite 200
Colorado Springs, CO 80903
(719) 359-8789
success@cashtracksfinancial.com
Do You Owe the IRS Money That You Can’t Pay? Are You a Year or More Behind in Filing Your Income Tax Returns? Are You Behind in Your Payroll Tax Filings or Payments? Our Tax Relief services and Tax Resolution assistance can help you get tax relief!
Showing posts with label compensation
S-Corporation. Show all posts
Showing posts with label compensation
S-Corporation. Show all posts
Monday, July 29, 2024
Friday, June 7, 2024
Colorado Springs: Why is Reasonable Compensation Important for S-Corporation Officers?
Reasonable compensation is a critical concept for S-Corporation owners, ensuring compliance with IRS regulations and maintaining the integrity of the tax system. As S-Corporations are pass-through entities, they do not pay corporate income tax. Instead, income, gains, losses, and deductions are passed through to shareholders' personal tax returns. However, working shareholders must receive reasonable compensation for their services, which is subject to payroll taxes like FICA.
Failing to take reasonable compensation can lead to significant issues. First, it can trigger IRS audits and penalties. The IRS examines S-Corporations to ensure that wages are not being disguised as distributions to avoid payroll taxes. If the IRS determines that compensation is unreasonably low, it can and does reclassify distributions as wages thus requiring the filing of payroll tax forms and payment of failure to deposit penalties and failure file penalties.
Second, adhering to reasonable compensation standards supports the social security and Medicare programs, as payroll taxes fund these programs. As an S-Corporation owner, you are also contributing to your own social security, ensuring that you will have a higher than average benefit when it is time for your start drawing your own social security,
How do you know if your S-Corporation salary is reasonable according to IRS standards? Marcelino Dodge, EA, CTRC works with small business owners to help them determine what a reasonable salary is and then implement the salary according IRS guidelines.
Cash Tracks Financial of Colorado Springs
Marcelino Dodge, EA, CTRC
525 N Cascade Ave., Suite 200
Colorado Springs, CO 80903
(719) 359-8789
www.cashtracksfinancial.com
success@cashtracksfinancial.com
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