Daniel HonanFounder, Profitable Painter CPA PLLC · I help painting contractors increase profits & cash flow while reducing taxes♦ Bookkeeping ♦ Tax

Painting Business Owners: Spot S-Corp Red Flags Before Year-End! #SmallBusinessTax

Name: Painting Business Owners: Spot S-Corp Red Flags Before Year-End! #SmallBusinessTax
Uploaded: 2024-11-21T14:15:07+00:00
Duration: 34 s
Channel: Daniel Honan
Description: In this segment, the hosts discuss critical year‑end tax considerations for painting business owners who operate as S‑corporations. They emphasize the…

21 Nov 2024 · 1 min

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In this segment, the hosts discuss critical year‑end tax considerations for painting business owners who operate as S‑corporations. They emphasize the importance of maintaining reasonable officer compensation, suggesting adjustments such as lowering or raising pay and adding fringe benefits like healthcare to increase compensation without incurring additional payroll taxes. They warn that failing to pay W‑2 wages while taking tax‑free distributions triggers IRS red flags, potentially leading to audits. The conversation underscores that these compensation reviews should be done annually, and owners who have gone most of the year without a paycheck have a limited window to correct the issue before year‑end.

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Is my compensation still reasonable for what I do? If it's not, we might consider lowering it. We also might consider adding other fringe benefits such as healthcare to our officer compensation so that we raise it up without having to pay extra payroll taxes. If our officer compensation is too low, or maybe we haven't paid ourselves our W-2 wages yet, now is a great time to fix that problem. These things are reviewed on an annual basis. So if you spent the first 9 months of the year not taking a paycheck, you've got months to fix that problem. Before it becomes a problem. So great time to review that.
Yeah, because that definitely is a red flag with the IRS, having an S corp that you own, that you also work in, and you don't have any officer compensation that was paid.
Yes. If you're taking tax-free distributions from your company, but you're not paying yourself a W-2 wage, and this is for S corps, that is throwing up flares to the IRS saying, please come audit me.