The IRS continues to feast on S firms that pay very low salaries to owners

In many cases, S firm owners take low salaries to they can receive the bulk of the corporation's profits as dividends, which are not subject to payroll taxes. IRS and the courts balk at this practice. In a recent case, a CPA took a $24,000 salary in a year when his share of the S firm's profits was around $200,000. A district court agreed with the IRS that his pay was unreasonably low and ruled that the dividends are properly reclassified as salary and are hit with payroll taxes.

(Watson, D.C., Iowa)