Tips on S Corp Compensation

The IRS continues to challenge S Corporation shareholders regarding proper methods for paying themselves. That said, it’s critical that your S Corporation structure is set up appropriately and that compensation is paid and reported correctly. For example, in a recent court appeal case, an attorney was slapped with penalties and interest after failing to remit payroll taxes for his corporation—even though compensation was reported on a 1099-MISC and individual income and social security taxes were paid. This is a good example of why S Corps must ensure that payments are reported as compensation by December 31, 2012, and that appropriate tax deposits are made and payroll tax returns are filed.