As we’ve mentioned in past issues of the Tax Reduction Letter, there’s good news for S corporation owners:
Tax reform gives you a new 20-percent Section 199A deduction on pass-through income.
But be aware…
The IRS requires that you pay yourself “reasonable compensation.” If you don’t, you can torpedo your deductions and be forced to pay extra taxes and penalties.
Want to stay on the right side of the law?
We’ll explain how to play the game and win when you read my new article titled Tax Tips: Tax Reform Doubles Down on S Corporation Reasonable Compensation!
Three ways our fact-filled article can help you:
- We’ll tell you why paying yourself “reasonable compensation” is so important. Reasonable compensation is generally considered to be what you’d pay for a third party to perform the services that you provide. If you fail to pay yourself reasonable compensation, the IRS can “recharacterize” your S corporation as wages. This makes you and your corporation liable for all payroll taxes. You’ll get full details when you read the full after-tax-reform article.
- You’ll learn how your salary affects your Section 199A deduction. Your W-2 reasonable compensation factors into your Section 199A deduction in two ways. It’s important that you fully understand these factors which we’ll explain in easy-to-understand language when you read the full after-tax-reform article.
- We’ll tell you why reducing or increasing your salary can be dangerous. Both strategies come with significant risks. What you should want to pay yourself is a Goldilocks salary. Not too much. Not too little. We’ll explain what’s “just right” when you read the full after-tax-reform article.