Decrease Your Chances of Being Audited

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According to IRS statistics your chances of being audited as a Schedule C Sole-Proprietorship are 3-4%, compared to an S-Corporation of 0.3-0.4%.  So, your chances of being audited are about 10 times greater as a sole-proprietor.  That sounds like a great reason to set your business up as an S-Corp!

Other ways to reduce your chances of being audited are:

S-Corporation Filing Penalties

Today is September 15th, the due date for extended 1120, 1120s and 1065 returns.  This is always a busy and sometimes rather stressful day at my office.  It shouldn’t be that way, but the stress level is high because we file a lot of S-Corp taxes and, well, the tax laws regarding late penalties for S-Corps are just plain unfair. 

What is an S-Corporation?

An “S-Corporation” is a regular Corporation that has elected with the IRS to be considered a “pass-thru entity”, where all income and losses are passed through to the individual shareholders personal returns.  Thus, an S-Corporation does not pay any Federal Income Taxes.  By electing S-Corporation status,

S-Corp Home Office

There is A LOT of fictitious tax advice out there.  The majority of it involves fraudulent or incorrect tax deductions.  One of the most common bad pieces of advice given to taxpayers involves an S-Corporation owner renting a home office from a shareholder.

Many tax “professionals” will tell an S-Corp shareholder to sign a Net Lease with the Corporation and lease a portion of their home to the company.  The problem with this advice is

S-Corp Reasonable Salary

There isn’t a clear cut answer to what a “reasonable salary” is. However, the IRS has come out with some guidance on the matter.

The instructions to the Form 1120S, U.S. Income Tax Return for an S Corporation, state “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.”