Article Date:
July 2016


Word Count:
910

 

 

Tax Court Puts Personal Service Corporations on Notice for Bonuses


Sometimes it seems the IRS is just out to get you.

 

If you operate as an S corporation, the IRS knows that your strategy is to lower your salary and bonuses so that both you and your corporation pay less in FICA and Medicare taxes.

 

If you operate as a personal service C corporation, your strategy is to increase your W-2 income so you can zero out the corporate income that’s subject to the flat 35 percent tax rate on all personal service corporate income.

 

A recent court ruling puts personal service corporations that use the zeroing-out strategy on notice for using this practice.

 

The Brinks case shows us just how badly your corporation can get slammed for failing to make its zeroing-out bonuses hold up to the IRS and the court. ... Log in to view full article.

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