You likely formed an S corporation to save on self-employment taxes.

If so, is your S corporation salary

nonexistent?

too low?

too high?

just right?

Getting the S corporation salary right is important. First, if it’s too low and you get caught by the IRS, you will pay not only income taxes and self-employment taxes on the too-low amount, but also both payroll and income tax penalties that can cost plenty.

Second, in most cases, the IRS is going to expand the audit to cover three years and then add the income and penalties for those three years.

Third, after being found out, you likely are now stuck with this higher salary, defeating your original purposes of saving on self-employment taxes.

Fourth, your tax advisor can get slapped with preparer penalties. ... Log in to view full article.