S corp reasonable salary

[aneftp]

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Find it interesting that the IRS specifically included a self-employed anesthesiologist for the home as business use in this article

It’s been long on going battle with irs for 30 plus years. The anesthesiologist does not have a real office so can deduct home office legally.

COMMISSIONER v. SOLIMAN, 506 U.S. 168 (1993) | FindLaw

Case opinion for US Supreme Court COMMISSIONER v. SOLIMAN. Read the Court's full decision on FindLaw.

caselaw.findlaw.com

There was more guidance as well after this ruling but I’m too lazy to link everything

 

[deleted87051]

It’s been long on going battle with irs for 30 plus years. The anesthesiologist does not have a real office so can deduct home office legally.

COMMISSIONER v. SOLIMAN, 506 U.S. 168 (1993) | FindLaw

Case opinion for US Supreme Court COMMISSIONER v. SOLIMAN. Read the Court's full decision on FindLaw.

caselaw.findlaw.com

There was more guidance as well after this ruling but I’m too lazy to link everything

Not our group but another local group has a contract that says each anesthesiologist must maintain a home office. They put it in for tax purposes.

 

[deleted87051]

Hoag?

Another group.

 

[aneftp]

Hoag?

I don’t think anyone should specifically disclose any private group and what they do in terms of tax purposes to be honest. These forums are public.

It’s one thing everyone gets a mass text about a job opening. Another thing to disclose or ask any specific questions about private business tax schemes.

 

[Socrates25]

Your going to have to empty the group bank account at the end of the year to avoid taxes .. so I would pay “salary” throughout the year based on productivity , and at the end of the year all shareholders get an equal split of what’s left in the accounts before you zero out for the year as a “bonus” or “distribution” . All of this counts as w2 income to the individual doc btw not capital gains , just part is “salary” and part is “distribution/bonus”

S corps taxes are pass thru so you dont need to empty the bank account, you are going to pay taxes on it no matter what, even if that money stays in the corporate bank account and never touches the partners personal bank accounts.

Example: 5 partners have combined 5 million in revenue and 3 million in business expenses. Profit = 2 million. Even if the partners never touch that profit money and the 2 million stays in the corp bank account, the partners on their individual tax returns are going to have to claim 400k on their taxes in addition to the W2 wages that were paid to them.

 

[caligas]

S corps taxes are pass thru so you dont need to empty the bank account, you are going to pay taxes on it no matter what, even if that money stays in the corporate bank account and never touches the partners personal bank accounts.

Example: 5 partners have combined 5 million in revenue and 3 million in business expenses. Profit = 2 million. Even if the partners never touch that profit money and the 2 million stays in the corp bank account, the partners on their individual tax returns are going to have to claim 400k on their taxes in addition to the W2 wages that were paid to them.

Well said, very few docs understand this, they generally think they are paying tax on whatever the distributions are.

 

[aneftp]

Well said, very few docs understand this, they generally think they are paying tax on whatever the distributions are.

Correct. I’m just amazed by the lack of knowledge by supposedly smart professionals

 

[Hoya11]

Well said, very few docs understand this, they generally think they are paying tax on whatever the distributions are.

Wouldn’t the corporation pay the taxes if it’s in the corporate bank account beyond Jan 1 and has not been distributed to the partners ?

So you empty out at the end of the year to avoid DOUBLE taxation. Meaning that 2 million in profit in your example , if the bank account is not emptied out by years end, is taxed for the corporation , and then when it’s distributed taxed again as individual income tax

That’s my understanding

 

[caligas]

Wouldn’t the corporation pay the taxes if it’s in the corporate bank account beyond Jan 1 and has not been distributed to the partners ?

So you empty out at the end of the year to avoid DOUBLE taxation. Meaning that 2 million in profit in your example , if the bank account is not emptied out by years end, is taxed for the corporation , and then when it’s distributed taxed again as individual income tax

That’s my understanding

It depends on the type of corporation. For an S corporation, which is a pass-through corporation there is no corporate level taxation. All profits, and therefore all taxes, pass through to the individual shareholders. The shareholders tax in regards to corporate profit is based on the book profits for the corporation not what cash they receive from it. It makes no difference whether the money is left in a bank account of the s corporation or is paid out to shareholders in regards to what taxes the individuals owe.

Obviously, individual shareholders also pay their income tax on their salary/W-2 earnings.