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© 2018 Van-Griner. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Employment Taxes and UndercompensationS corp with 1 owner who is also employeeAll Salary, None DistributedReceivedNo Salary,All Distributed ReceivedNet income before salary & distributions$60,000$60,000Salary(60,000)$60,00000Taxable income flow thru to S/H assumed all distributed00$60,000$60,000Amount subject to payroll taxes$60,000
Employment Taxes: UndercompensationRadtke65 AFTR 2d 90-1155 (CA-7, 1990)Attorney operates practice as S CorpReceived $18,225 in distributions (dividends) from corporation and $0 salaryPaid no FICA or FUTACourt believed that Radtke performed substantial services for the corp and did not receive reasonable compensation for such services other than dividendsHeld: all of the dividends were compensationAlso Spicer Accounting Inc. 66 AFTR 2d 90-5806 (CA-9, 1990)
© 2018 Van-Griner. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Employment Taxes: S Corps v. PshpsFacts: Husband and wife businessPartnershipS CorpNet income before compensation$60,000$60,000Guaranteed payment or salary(20,000)(20,000)Employer FICA 7.65% x $20,0000(1,530)FUTA (6.2% x $7,000 x 2)0(868)Flow-thru income40,00037,602Add guaranteed payment or salary20,00020,000Withheld FICA tax (7.65% x $20,000)(1,530)SE tax (15.3% x $60,000 x 92.35% = 8,478)*(8,478)4,2380
Fringe BenefitsTreatmentFor certain fringe benefits, treatment depends on whether the shareholder is considered either
Fringe BenefitsShareholders owning 2 percent or less Treatment Follows C corporation rulesDeductible by S corp Nontaxable to shareholder-employee
Fringe BenefitsShareholders owning more than 2 percentTreated like partnersFringe benefits requiring employee status are not available and treated as compensation.Not subject to FICA or FUTA taxesShareholder treated as payingHealth insurance premiums are deductible by the shareholder for AGI
Fringe BenefitsFringe benefits that receive differing treatment--why? Available only to employees and > 2% SHs not treated as employeesThe six benefits that require employee statusGroup-term life insurance (§ 79)Amounts received under accident and health (medical reimbursement) plansPremiums on employer-paid accident and health insuranceMeals and lodging provided by the employerValue of transit passesParking provided by the employer (except that provided

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