Compensation/Distribution for Business Owners and Sub-Chapter-S Corporate Shareholders

August 22, 2018

As an S-Corp shareholder, knowing when payments need to be characterized as compensation or a distribution can be a tricky one.  As a rule of thumb, each annual corporate shareholder meeting should designate the Reasonable Compensation for each shareholder who participates in the operation of the business for that year.  That agreed upon amount will contribute to decisions about when and if distributions can be taken.  Failure to pay compensation in a timely manner and in the amount deemed to be reasonable can result in fines and penalties from IRS.  If you have questions about how and when to take distributions, contact our office and we can guide you in navigating the difficult waters of payments to shareholders.

 

Having the health insurance plan for shareholders set up through your business can net you a better deduction of those high cost premiums come tax time!  With the changes made in the Tax Cuts and Jobs Act of 2017, the ability of many taxpayers to deduct medical costs beginning in 2018 just became more difficult than ever.  If you are an S-corp shareholder, setting up health insurance plans through your business can allow those premiums to be treated as Self-Employed Health Insurance on your personal return, and will allow you to deduct them regardless of any income percentage threshold or need to itemize deductions.  Our accounting professionals can advise you on tax planning items such as this before the time comes to file those returns again!

 

The Tax Cuts and Jobs Act of 2017 made some changes to the expenses that a business can deduct beginning January 1, 2018.  One of the types of expenses affected is business meals and entertainment.  With the new law, expenses for such things as the cost of tickets to sporting events or theater performances for or with clients are no longer deductible at the 50% limit that they were prior to January 1, 2018.  The problem lies in the failure of the law to give specific guidelines in relation to business meals.  Meals with clients have been deductible at 50% in previous years with proper documentation of the business purpose of the meal.  Hopefully clear guidelines will be forthcoming before the filing season is upon us.

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