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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Travis_Bickle who wrote (159221)10/23/2008 10:39:22 AM
From: GraceZRead Replies (2) of 306849
 
Hey, don't listen to me get a CPA. My CPA was after me for years to switch to an S or LLC to forgo the FICA tax.

You are wrong about saving Medicare and not SS. No dividend payments are are ever subject to either and it is not unusual for small business owners under those entities to have dividend payments that are a large multiple over their wage income.

What the IRS legally allows for your compensation level depends on the market value of your position or what you would pay a replacement for what you do. It has nothing to do with the net profit on the biz. I had a biz where the market value of my job, photographic printer, was about a tenth of what I could make owning the biz. Basically dividends are the return on your capital, not compensation based on hours and work done as an employee of the company.

Now a lawyer, with little invested capital and a high market value for their work, might have a much more difficult time making those kinds of ratios, but small business owners that aren't normally high paid professionals can frequently justify low wages/high dividends for themselves especially when they have large amounts of capital equipment, like all my clients do.

You don't even have to be the most highly compensated individual in your business. I have several clients that run 2-5 million dollar companies that receive somewhere in the range of 30k in income and many times that in dividends, with employees that make more than they do. Now they have a much more aggressive CPA then I'd ever employ and I've warned them for years that they open themselves up to a serious and costly battle with the IRS over that practice, but so far they've gotten away with it. I've been warning them for 25 years and so far I've been wrong.
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