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Greed <i>Isn't</i> Good

Be careful when deciding what to pay yourself, because Uncle Sam's watching.

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This story appears in the September 2000 issue of Entrepreneur. Subscribe »

When the profits are flowing in, it's often tempting to give yourself a nice, big bonus at the end of the quarter. But you'd better keep your greed at bay if you're organized as a regular corporation: The IRS is going after those business owners who pay themselves too much.

A number of entrepreneurs have ended up in court on the issue, and the IRS has come away with some impressive wins. It has successfully argued that a portion of the compensation taken, including bonuses, should have been declared corporate dividends. When dividends are declared, the owner is taxed twice on the income, once at the corporate level and again when the owner receives the money.

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