S corporation distribution treated as wages subject to FICA taxes

Judging by the number of recent cases on this issue, both taxpayers and the IRS have figured out that if the owner of an S corporation withdraws all of the earnings of the business conducted by the corporation in the form of dividends rather than as wages, he avoids paying the FICA taxes on those amounts. Where an owner works for his business but takes no salary, upon audit the IRS very likely will take the position that some part of the distributions to the owner must be treated as wages for services rendered.

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