If you are the owner of an S Corporation business, I am writing to tell you about an increase of IRS audits on S Corporations. The number of audits is expected to grow in the coming years.
Here’s why: for many decades, small business owners have used the S Corporation entity to avoid or minimize self-employment taxes. As a result, Social Security and Medicare are underfunded.
If your S Corporation is not issuing you, the owner, a W-2 at the end of the year, or if your W-2 income is very low, you are at risk. The major issue involves establishing “reasonable compensation.” When determining reasonable compensation, the IRS requires companies to research and document how salaries have been calculated.
The risk of an audit is very real and should not be taken lightly. From 2007 – 2011, the IRS completed over 50,000 S Corp audits. For each return audited, examiners generated an average of $40,000 in taxes and penalties. Yes, this is money each business owner had to pay the IRS!
As your tax advisor and/or accountant, I feel it is my duty to make you aware of this risk, and to help you comply with tax law. Let’s clean house before the IRS comes knocking!
I have invested in a tool that generates an audit-proof Reasonable Compensation Report. A Reasonable Compensation Report is a detailed document that establishes the amount you should be paying yourself in salary. This report is extensive because it considers all nine of the criteria that the IRS uses when it analyzes S Corp compensation. It will stand up to an IRS audit.
To complete your personalized report, I will only need about 15-20 minutes of your time for an on-line interview. Once you have completed the interview, I will review your input and calculate your Reasonable Compensation figure. The best time to establish your Reasonable Compensation figure is now, before an IRS examination.
As a business owner, it is up to you to act and avoid the consequences of failing to act. Let us help!