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+ - IRS Nails CPA for Copying Steve Jobs, Google Execs 1

Submitted by theodp
theodp (442580) writes "Silly rabbit, $1 salaries are for super-wealthy tech execs! The WSJ reports that CPA David Watson incurred the wrath of the IRS by only paying himself $24,000 a year and declaring the rest of his take profit. It's a common tax-cutting maneuver that most computer consultants working through an S Corporation have probably considered. Unlike profit distributions, all salary is subject to a 2.9% Medicare tax and the first $106,800 is subject to a 12.4% Social Security tax (FICA). By reducing his salary, Watson didn't save any income taxes on the $379k in profit distributions he received in 2002 and 2003, but he did save nearly $20,000 in payroll taxes for the two years, the IRS argued, pegging Watson's true pay at $91,044 for each year. Judge Robert W. Pratt agreed that Watson's salary was too low, ruling that the CPA owed the extra tax plus interest and penalties. So why, you ask, don't members of the much-ballyhooed $1 Executive club like Steve Jobs, Larry Ellison, Sergey Brin, Larry Page, and Eric Schmidt get in hot water for their low-ball salaries? After all, how inequitable would it be if billionaires working full-time didn't have to kick in more than 15 cents into the Medicare and Social Security kitty? Sorry kids, the rich are different, and the New Global Elite have much better tax advisors than you!"
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IRS Nails CPA for Copying Steve Jobs, Google Execs

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  • The guy is a bonehead for trying it. As a CPA, he should have known better. The basic rule is, you need to pay yourself a reasonable salary, eg a regular CPA's hourly rate. Anything above that can be distributed to yourself as a dividend, sidestepping FICA/Medicare taxes.

Adding manpower to a late software project makes it later. -- F. Brooks, "The Mythical Man-Month"

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