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Author: TheBadger Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121163  
Subject: Re: Tax strategies for an S-Corp. Date: 12/20/2000 10:37 AM
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What about a scenario with a startup s-corp that is extremely small and revenues barely reflect the "relative value" of the labors?

Certainly if a company is a "start-up" and is in its first year or two of operation; remembering that a company can not forever be a startup; then I think you can do just about whatever you want to do because the numbers just don't matter.

Further, let's say you are the surveyor & in your first full year of operation your corp. has net income of $25,000 before your salary. No one is saying you must pay yourself $60,000 as a full a fair wage & pay employment taxes (FICA/Medicare) on the full $60k which then results in a $35k loss flow-through. Instead, I might pay $20k in wage and allow $5k to flow-through & wait to see what happens next year.

The real issue kicks in around $120,000 of wage. All owners are incentivized to declare $120k as that is magic number that permits the maximum §415(c) pension plan contribution of $30k per year. It is this $30k per year pension contribution that makes all of the other mickey-mouse numbers & recordkeeping tolerable.

Now, if your corp has $175k of net income; the math is easy: $120k in wage; $30k pension, $25k as flow-through net income. What if your corp. has $400k of net income??? This gets tough. If you can reasonably substantiate that your labors are only worth $120k; then fine, let the excess $250k flow-through. COnversely, if your labors are really worth $300k then you should declare wages in that relative vicinity even though it will cost you approx. another $5k in Medicare tax.

TheBadger


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