You Need a Raise
No use paying yourself less. The IRS is cracking down on disguised dividends.
By Joan Szabo •
Opinions expressed by Entrepreneur contributors are their own.
The attraction of electing S corporation status is well-knownamong entrepreneurs, but there's a potential problem you mayrun into if your business is organized as an S corp that you maynot be aware of. IRS auditors are paying very close attention tothe salary that the owners of S corps pay or don't paythemselves.
As you know, S corporation income, losses, deductions andcredits "pass through" the business to the owners, to bereported on their individual tax returns. While distributions fromthe corporation are not subject to FICA withholding, the S corpowner is required to withhold FICA taxes--which amount to awhopping 7.65 percent on the first $87,000 in salary he or sheearns in 2003.
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