The Asian financial crisis of 1997 and its consequences

Document Type

Article

Publication Date

1999

Department

Accounting and Finance

Abstract

Many owners/sole employees of small businesses set up S corporations on the advice of their tax advisers and compensate themselves with wages and profit distributions. Some of them pay themselves a low wage to save on employment (FICA) taxes and then get in trouble with the IRS because their wage is not "reasonable." The end result is that they owe back taxes, penalties, and interest, and they will also have missed some important retirement contribution options. This article discusses how reporting a higher wage can actually maximize long-term profits for the owner-employee of an S corporation.

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