IRS continues to enforce “reasonable” shareholder-employee salaries

Description

Abstract: Because shareholder-employees of S corporations aren’t subject to self-employment taxes on their respective shares of the company’s income, many such businesses minimize shareholder-employee salaries (which are subject to payroll taxes) and compensate them mostly via “dividend” distributions. But the IRS views overly minimized salaries as an improper means of avoiding payroll taxes. This article discusses the “reasonable” salary issue and suggests ways companies can minimize the odds of an IRS investigation.