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S corporation owners that pay themselves low salaries should and will be a bigger IRS target, according to Treasury inspectors.

Many S corporation shareholders take low salaries, so the bulk of their profits are passed through to their own 1040 individual returns free of Social Security and Medicare taxes. The Service may balk at this practice, but it is falling behind on enforcing the rules.

In 2018, IRS audited a measly 0.2% of all S corporations. Even when the agency does select a firm for examination, half of the time its revenue agents don’t even evaluate officer compensation. IRS says its policies and procedures properly address the compliance risk.

So, start paying a reasonable salary to yourself, it will save you time and aggravation moving forward.  Foe guidance give us a call.

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