User talk:Tonypa

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Hello and welcome to TaxAlmanac! My name is Tim Doyle and I serve here in the role of TaxAlmanac Moderator.

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Tdoyle 12:01, 1 Nov 2005 (CST)

You wrote:

I usually just use something reasonable as compared to net income, and I determine this as a year-end salary, unless the owner wants to take salary during the year. I know it opens up for a payroll audit, in that the year-end salary probably could be pro-rated over the year, but I use it at year end as a vehicle to pay their estimated taxes, since withholdings are deemed as paid equally throughout the year, thus reducing the chance of underpayment penalties. Also, I use the amount needed for withholding as another guide for determining the gross salary. This is still sort of unchartered territory, and we are all taking a bit of a chance in whatever method we used. I just think that as long as it looks reasonable on paper, you probably won't be audited. As an aside, a few months ago I read they are trying to pass that S Corp K-1's to participating owners will be subject to S/E tax, just like a partner in a partnership, so this may all be a moot point in the near future.

jt: I appreciate what you have written here and it reasonates with what I belive is similiar to a process that has been used in our own company. In an effort to gather more clarity as to how the irs fringe benefit rule concerning S-corps applies :(A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power.) I came across this thread. Apparently even the professionals at the irs even have difficulty explaining what that looks like with two shareholders owning less than 2% of a total issued stock in a corporation.

Given the current debate over Private Equity, Perhaps we should consider listing salaries as management fees. Are you by any chance near Wilmington NC?



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