Stuart N Busby, CPA "Stu the CPA"

11/22/2024

06/12/2024

Are you receiving notices from the IRS threatening to Lien of Levy your assets? Schedule you free consultation today with Stuart N. Busby, CPA at (916)585-3505 or on-line at https://stuartnbusbycpa.com.

01/04/2024

REASONABLE COMPENSATION ANALYSIS

01/04/2024

Reasonable Compensation
S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.

The instructions to the Form 1120-S, U.S. Income Tax Return for an S Corporation, state "Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation."

The IRS has the authority to reclassify payments made to shareholders from non-wage distributions (which are not subject to employment taxes) to wages (which are subject to employment taxes). Several court cases support the authority of the IRS to reclassify other forms of payments to a shareholder-employee as a wage expense which are subject to employment taxes.

Areas of Court Support;Court Case Authority to Reclassify:

Joly v. Commissioner, T.C. Memo. 1998-361, aff'd by unpub. op., 211 F.3d 1269 (6th Cir. 2000) Reinforced Employment Status of Shareholders Veterinary Surgical Consultants, P.C. vs. Commissioner, 117 T.C. 141 (2001)

Joseph M. Grey Public Accountant, P.C. vs. Commissioner, 119 T.C. 121 (2002)

Reasonable Reimbursement for Services Performed David E. Watson, PC vs. U.S., 668 F.3d 1008 (8th Cir. 2012)

The key to establishing reasonable compensation is determining what the shareholder-employee did for the S corporation by looking to the source of the S corporation's gross receipts.

The three major sources are:

Services of shareholder
Services of non-shareholder employees or
Capital and equipment

To the extent gross receipts are generated by services of non-shareholder employees and capital and equipment, payments to the shareholder would properly be treated as non-wage distributions that are not subject to employment taxes.

But to the extent gross receipts are generated by the shareholder's personal services, then payments to the shareholder-employee should be classified as wages that are subject to employment taxes.

In addition to gross receipts generated directly by the shareholder-employee, the shareholder-employee should also be subject to wage treatment for administrative work performed by him for the other income-producing employees or assets. For example, a manager may not directly produce gross receipts, but he assists the other employees or assets which are producing the day-to-day gross receipts.

Some factors in determining reasonable compensation:

Training and experience
Duties and responsibilities
Time and effort devoted to the business
Dividend history
Payments to non-shareholder employees
Timing and manner of paying bonuses to key people
What comparable businesses pay for similar services
Compensation agreements
The use of a formula to determine compensation

Make an appointment today to discuss this highly important matter. The IRS is ramping up audit staff to address this issue specifically. We can assist you with establishing your reasonable compensation. in a supporting manner to the IRS. We use the same methodology the IRS uses when establishing your reasonable compensation. Schedule your appointment at: https://stuartnbusbycpa.com or call 916.585.3505.

01/02/2024

We are the original virtual CPA Firm. We do everything virutally. We will set you up on a virtual secure site to exchange documents. We conduct video interviews and will provide you your tax return for signature through your very own secure virtual site. Call us today at 916-585-3505 or set-up an initial consultation online at https://stuartnbusbycpa.com.

01/02/2024

Stu the CPA - The Original Virtual CPA is now accepting new clients for the 2024 Tax Season. Call Today or Schedule Your Appointment on-line at https://stuartnbusbycpa.com

08/13/2023

Stuart N. Busby, CPA can help you navigate the complexities of the Employee Retention Credit. Schedule your complimentary appointment today at https://stuartnbusbycpa.com.

02/15/2022

IRS reminds taxpayers their Social Security benefits may be taxable

A new tax season has arrived. The IRS reminds taxpayers receiving Social Security benefits that they may have to pay federal income tax on a portion of those benefits.

Social Security benefits include monthly retirement, survivor and disability benefits. They don't include supplemental security income payments, which aren't taxable.

The portion of benefits that are taxable depends on the taxpayer's income and filing status.

To determine if their benefits are taxable, taxpayers should take half of the Social Security money they collected during the year and add it to their other income. Other income includes pensions, wages, interest, dividends and capital gains.

If they are single and that total comes to more than $25,000, then part of their Social Security benefits may be taxable.

If they are married filing jointly, they should take half of their Social Security, plus half of their spouse's Social Security, and add that to all their combined income. If that total is more than $32,000, then part of their Social Security may be taxable.

Fifty percent of a taxpayer's benefits may be taxable if they are:

Filing single, head of household or qualifying widow or widower with $25,000 to $34,000 income.

Married filing separately and lived apart from their spouse for all of 2020 with $25,000 to $34,000 income.

Married filing jointly with $32,000 to $44,000 income.

Up to 85% of a taxpayer's benefits may be taxable if they are:

Filing single, head of household or qualifying widow or widower with more than $34,000 income. Married filing jointly with more than $44,000 income.
Married filing separately and lived apart from their spouse for all of 2021 with more than $34,000 income. Married filing separately and lived with their spouse at any time during 2021.

More information:
Social Security Income
Are My Social Security or Railroad Retirement Tier I Benefits Taxable?
Publication 915, Social Security and Equivalent Railroad Retirement Benefits

Go to:https://go.usa.gov/xtdsM