Paying Social Security Taxes

[ultrarunner]

This would not stand up under audit by a qualified IRS agent.

Don't know what to say... he started his business in 1972 and he has an MBA in Accounting from Armstrong. He's had routine audits several times without incident.

The business is a corporation and his wife is president... that also helped in getting local city and county jobs where preference is given for Women Owned Firms. He purposely modeled his firm to minimize taxes. The bulk of his income is generated from commercial property investments.

He sold the business 3 years ago at age 58 and still collects NNN on the property from the new owners...

He is very smart in optimizing every situation by looking at the big picture... maximizing the dollars in his pocket when all is said and done and is very careful not to take any short cuts and keeps extensive records for audits.

Case in point... he paid his own disability insurance out of pocket from his after tax earnings. He became partially disabled... brain tumor... all of his disability income is tax free because the premium was paid with after tax dollars.

 

[Alan L.]

The possibility of the IRS challenging salary from a C corp as being too LOW is a new one, just since the tax on dividends went to 15%. However I don't see that it should be a problem at all.

The only problem would be if the rent being paid on the property is more than market and thus not arms length.

If it is market rent, and no salary is being paid, this means the corp is making money which is then being paid as dividends.

The problem with this is that dividends aren't deductible so the corp pays tax on that income, then the shareholder pays tax on the dividend. Salaries are deductible, but have the added burden of the payroll taxes, so the mileage would vary as to whether its a really smart way to do business.

If he is paying $10K a month rent for property worth $1K, that wouldn't stand up under audit.