One Man S Corp Needs be Careful

As usual, I’ll drop in some help info for who ever is working to be an entrepreneur. Some of you might be independent consultant and might has business as S Corporation. Here is a year-end tax-planning tip for you IT consultants and web entrepreneurs operating as S corporations got from Stephen L. Nelson, who publishes the do-it-yourself S corporation web site, recently shared this scary snidbit concerning S corporation.

Nelson says that at a November 1 Internal Revenue Service symposium in Seattle for tax practitioners, Mark Pierce, the IRS’s national S corporation issue specialist and S Corporation technical advisor said he takes position that one-person S corporations need to take all of their profits as wages.

Nelson notes that this position, while un-official, probably reflects how the IRS views one-man S corporations on examination.

A quick primer on S Corporations in case you’re uninitiated. The business profit that a sole proprietorship or partnership makes (or that an LLC treated as a sole proprietorship or partnership makes) is taxed twice: one time via the income tax and another time via self-employment taxes. Someone who makes $100,000 a year, for example, often pays around the $13,000 in income taxes and around $13,000 in self-employment (payroll) taxes.

Just thought this info might help.