Examples:

• • Jim lowers his tax rate having wife Jenny on payroll.
  • Adam funds Jane’s medical insurance as company expense.
  • More W2 income means bigger Social Security checks for Emma later.
  • New 401k means Alex benefits from employer matching.
  • Additional fringe benefits boost Williams family taxes.

How to Proceed:

• • Model personal tax scenarios to quantify potential bottom line savings.
  • Review which business expenses suddenly qualify as deductible.
  • Factor both spouses’ future Social Security optimization.
  • Vet retirement plans balancing bureaucracy.
  • Research other fringe benefit tax reduction options.

FAQs:

• • Does mortgage interest qualify for deductions? No, the residence must be registered corporate property.
  • What are Social Security optimization strategies? Timing claim initiation, weighing spousal benefits etc.
  • Can retirement plans be enforced? Yes, the DOL requires sponsors adhere to procedures.
  • Can company cars count as compensation? Yes, attributed personal usage value applies.
  • Do anti-abuse laws ever apply here? If unreasonable compensation solely for tax avoidance.

Examples:

• • Megan passed the reasonable salary benchmark for bookkeepers.
  • Chris issues small W2 payments supplementing ownership payouts to self.
  • Although company president, Isaac’s pay aligned with industry medians.
  • Low weekly hours meant a smaller payroll check for part-time Vanessa.
  • Job descriptions detailed expectations for Lauren’s COO role.

How to Proceed:

• • Identify standard pay using Bureau of Labor Statistics data.
  • Distinguish profits from fair wages – IRS scrutinizes when they differ materially.
  • Benchmark against peers in your field and geographic region.
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  • Outline scope expectations in formal offer letters or operating agreements.

FAQs:

• • What happens if unreasonably underpaying? IRS can reclassify dividends as wages messing up payroll tax calculations.
  • Who decides what is reasonable? Ultimately the IRS/Tax Court but comparability analysis adds justification.
  • Is there still Medicare/Social Security tax exposure on distributions? Yes, but likely lower than payroll taxes depending on income thresholds.
  • What are red flags triggering audits? Outsized distributions not matching time and value provided raise suspicions.
  • Can I ever reimburse wages to the business account? Problematic – talk to tax advisors before attempting.

Examples:

• • Kyle followed all payroll transfer procedures properly.
  • Linda avoided the severe penalties that employee misclassification triggers.
  • Despite being family, policies ensured ethical treatment of part-time assistants Scott and Julia.
  • Sophia obtained all legally required new hire paperwork when joining the company as head of HR.
  • Updated income bracket changes impacted Amy’s Social Security tax obligations.

How to Proceed:

• • Set calendar reminders ensuring payroll processor transfers occur preventing interest/fines.
  • Classify all workers accurately at outset to avoid questions down the line. Consult the IRS 20 factor test if unsure.
  • Institute legally compliant HR practices like sexual harassment training from the beginning.
  • Use an I-9 fillable form, secure in personnel files.
  • Sign up for relevant state/federal agency email lists announcing changes.

FAQs:

• • What are telltale signs of misclassification? No set hours, autonomous decision making ability, short project basis.
  • Does anti-discrimination compliance apply to small S corps? Yes absolutely regardless of size.
  • What happens if I don’t supply an Employment Eligibility Verification Form I-9 in time? Civil penalty warnings then potential audit if repeat offenses.
  • Is nepotism illegal with family-owned S corps? No, but document clear roles, responsibilities and compensation benchmarking.
  • What wages require mandatory compliance? All including part-time workers and foreign employees working in the US.

Examples:

• • Mark followed protocols adding Laura given their mid-marriage business launch.
  • The Johnson’s corporation organized early in the relationship issued equal common stock stakes.
  • Performance milestones dictated Marissa’s restricted stock units vesting schedule.
  • Formal buy-sell arrangements provided Paul and Marie clarity on future separation processes if needed.
  • Tax professionals prepped the Tanaka’s for gift tax paperwork when granting majority stake to spouse Xia.

How to Proceed:

• • File S corp election forms if structured initially as sole LLC taxed as individual.
  • Document issuance through stock certificates or capitalization tables.
  • Stage vesting over at least 4 years motivating ongoing contributions.
  • Address worse case scenarios like disagreements, disabilities and death.
  • Record FMV (fair market value) at time of gifting for later tax reference.

FAQs:

• • What determines S corp share allocation ratios? Contributions, assets invested and active roles.
  • Can stock gifts occur incrementally vs all at once? Yes, but monitor 5 year gift exemption thresholds.
  • How binding are corporate bylaws and operating agreements? Highly enforceable provided no illegal aspects.
  • What happens if we divorce? Treat as any other jointly owned asset with equitable distribution.
  • Can board seats be created simply to boost decision authority? Risks failing IRS tests if disproportionate to ownership stakes.

• • • 1. What is one tax benefit of having a spouse on the S corp payroll? A) Income splitting to lower tax brackets B) Additional deductions C) Boosting social security income D) All of the above
    • 2. When assessing adding a spouse to the payroll, what should be analyzed? A) Tax scenarios B) Compliance considerations C) Ownership structure D) All key financial, legal and relationship angles
    • 3. Why must wages paid to a spouse in an S corp be reasonable? A) To avoid IRS scrutiny B) To balance salaries and profits fairly C) To avoid reclassification of distributions as wages D) All of the above
    • 4. What is a requirement when adding a spouse to an existing S corp? A) File form 2553 B) Issue stock certificates C) Draft a shareholder agreement D) None of the above
    • 5. How can payroll compliance risks be mitigated in an S corp? A) Follow all filing procedures B) Classify workers properly C) Adhere to labor laws D) All of the above
    • 6. What helps support reasonable salary determinations in an S corp? A) Industry data comparisons B) Documented job responsibilities C) Alignment with ownership splits D) All of the above
    • 7. Can health insurance premiums qualify as deductions for an S corp? A) Yes, if purchased through the S corp B) No, unless the residence is corporate owned C) Yes, if the spouse is a co-owner D) Sometimes, depending on the coverage type
    • 8. How are ownership splits commonly structured in S corps? A) Based on capital invested B) According to revenue shares C) Depending on hours worked D) There are several common methods
    • 9. What determines Social Security optimization tactics for S corps? A) Claim initiation timing B) Coordination of spousal benefits C) Wage history credits D) All of the above
    • 10. Can an improper payroll structure in an S corp trigger an audit risk? A) Yes B) No C) Unsure
    • 11. What is important to address in shareholder agreements for an S corp? A) Leadership transitions B) Stock transfers C) Dispute resolution D) All of the above
    • 12. How soon should I-9 verification paperwork be completed for S corp employment? A) Within first week of employment B) Within first month C) Before first paycheck received D) Within first 3 months
    • 13. What determines reasonable compensation levels in an S corp? A) IRS tests B) Labor statistics C) Industry comparisons D) All of the above
    • 14. Can S corps offer 401k retirement plans? A) Yes B) No C) Unsure
    • 15. What is important when granting shares incrementally in an S corp? A) Vesting milestones B) Gift tax thresholds C) Buyback terms D) All of the above
    • 16. What impacts payroll tax obligations for an S corp? A) Income bracket thresholds B) Labor law changes C) Corporation state D) All of the above
    • 17. Can corporate bylaws of an S corp be legally enforced? A) Yes B) No C) Unsure
    • 18. What helps quantify potential tax savings for an S corp? A) Financial modeling B) Scenario analysis C) Multi-year projections D) All of the above
    • 19. Does mortgage interest qualify for deductions in an S corp? A) Yes B) No C) Unsure
    • 20. What helps minimize worker classification issues in an S corp? A) Clear role definitions B) Hour tracking C) Following the IRS 20 factor guide D) All of the above
    • 21. Does anti-discrimination compliance apply to small S corps? A) Yes B) No C) Unsure
    • 22. Can nepotism in an S corp invite any special risks? A) Yes B) No C) Unsure
    • 23. What can help substantiate active work contributions in an S corp? A) Job descriptions B) Performance benchmarks C) Regular hours D) All of the above
    • 24. What is an important annual process for S corps? A) Updating thresholds B) System audits C) Employee reviews D) Summary plan descriptions
    • 25. Can dividends supplement modest salaries in an S corp? A) Yes B) No C) Unsure
    • 26. What helps avoid federal/state fine risks in an S corp? A) Following paperwork protocols B) Seeking legal counsel C) Timely tax transfers D) All of the above
    • 27. Which tax exposure still exists on S corp distributions? A) Payroll taxes B) Self-employment taxes C) Both payroll and self-employment D) None
    • 28. Who ultimately decides reasonable salary standards for an S corp? A) S corp owner B) Industry data C) IRS/Tax Court D) Department of Labor
    • 29. Can employee handbooks help achieve compliance in an S corp? A) Yes B) No C) Only for Delaware corps
    • 30. What helps minimize payroll administrator fines for an S corp? A) Direct deposit B) Payment card options C) Following monthly transfer protocols D) Using a PEO service
    • 31. Who should analyze tax reduction opportunities for an S corp? A) Certified accountants B) Payroll processor C) All affected parties D) Third party consultants
    • 32. What helps substantiate active family member roles in an S corp? A) Compensation benchmarking B) Clearly defined expectations C) Both compensation benchmarking and clearly defined expectations
    • 33. What impacts Social Security optimization planning in an S corp? A) Relative ages of both spouses B) Retirement lifestyle desires C) Existing personal assets D) All of the above
    • 34. What wage types require compliance in an S corp? A) Full-time salaries B) Part-time or foreign-based pay C) All wages regardless of hourly status D) Only payroll over certain thresholds
    • 35. Can board seats in an S corp be created solely for added authority? A) Yes B) No, risks failing IRS tests C) Unsure
    • 36. What aspects help quantify bottom line impacts for an S corp? A) Tax scenarios B) Price modeling C) HR expense projections D) All financial modeling elements
    • 37. Can shareholder agreements help resolve disputes in an S corp? A) Yes B) No C) Unsure
    • 38. What helps motivate ongoing work contributions in an S corp? A) Staged vesting schedules B) Company profit shares C) Both staged vesting & profit shares
    • 39. Should financial motivations outweigh ethical considerations in managing an S corp? A) Yes B) No C) Unsure
    • 40. What can convert an LLC into an S corp? A) Filing a form 2553 B) Issuing new ownership certificates C) Updating operating agreements D) An official entity restructuring
    • 41. What tax/benefits factors relate to adding a spouse in an S corp? A) Insurance contributions B) HSA accounts C) Continuation coverage D) All of the above
    • 42. Can employee classifications raise red flags in an S corp audit? A) Yes B) No C) Unsure
    • 43. What helps quantify projected tax savings in an S corp? A) Income splitting models B) Multi-year analysis C) Both income splitting models & multi-year analysis
    • 44. Can shareholder agreements for an S corp require arbitration? A) Yes B) No C) Unsure
    • 45. What happens if unreasonably underpaying a spouse in an S corp? A) Scrutiny of profit splits B) Mandated back pay orders C) IRS reclassification of dividends D) All of the above
    • 46. What is the best practice for forming an S corp? A) Hiring an attorney B) Using an online legal service C) Filing paperwork yourself
    • 47. In what situations should expert guidance be sought in operating an S corp? A) Tax compliance issues arise B) Adding a spouse to payroll C) Employee disputes occur D) All major legal or financial changes
    • 48. Can payroll compliance requirements change for S corps? A) Yes, stay updated on legal changes B) No, laws are fixed C) Unsure
    • 49. What is an advantage of benchmarking spouse salaries in an S corp? A) Support reasonable compensation justification B) Guide profit distribution ratios C) Optimize payroll tax savings
    • 50. Why are shareholder agreements important for S corps? A) Define leadership authority B) Outline dissolution terms C) Provide dispute resolution guidance D) All of the above
  • Answers:
    • • • 1: D) All of the above
        • 2: D) All key financial, legal and relationship angles
        • 3: D) All of the above
        • 4: D) None of the above
        • 5: D) All of the above
        • 6: D) All of the above
        • 7: B) No, unless the residence is corporate owned
        • 8: D) There are several common methods
        • 9: D) All of the above
        • 10: A) Yes
        • 11: D) All of the above
        • 12: A) Within first week of employment
        • 13: D) All of the above
        • 14: A) Yes
        • 15: D) All of the above
        • 16: D) All of the above
        • 17: A) Yes
        • 18: D) All of the above
        • 19: B) No
        • 20: D) All of the above
        • 21: A) Yes
        • 22: A) Yes
        • 23: D) All of the above
        • 24: A) Updating thresholds
        • 25: A) Yes
        • 26: D) All of the above
        • 27: C) Both payroll and self-employment
        • 28: C) IRS/Tax Court
        • 29: A) Yes
        • 30: C) Following monthly transfer protocols
        • 31: C) All affected parties
        • 32: C) Both compensation benchmarking and clearly defined expectations
        • 33: D) All of the above
        • 34: C) Compensation of all employee types and classifications
        • 35: B) No, risks failing IRS tests
        • 36: D) All financial modeling elements
        • 37: A) Yes
        • 38: C) Both staged vesting & profit shares
        • 39: B) No
        • 40: A) Filing a form 2553
        • 41: D) All of the above
        • 42: A) Yes
        • 43: C) Both income splitting models & multi-year analysis
        • 44: A) Yes
        • 45: D) All of the above
        • 46: A) Having an attorney review documents and structure
        • 47: D) All major legal or financial changes
        • 48: A) Yes, stay updated on legal changes
        • 49: A) Support reasonable compensation justification
        • 50: D) All of the above