Posted: November 7th, 2022
Why or why not?
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Go to the IRS website (link below) to research the issues surrounding S-Corp owner/employees and “reasonable compensation”. Then, read the following scenario about Troy and his plan to lower his FICA taxes. Do you think Troy’s actions are ethical? Are they legal? Why or why not?
PROMPT:
Troy is the sole shareholder and CEO of BQT. BQT is a very profitable S corporation. Until recently, Troy’s salary was in line with the salaries of comparable CEOs. However, Troy recently learned that he could reduce his tax burden if he were to reduce his salary. In particular, by lowering his salary, Troy would receive less employee compensation that is subject to FICA tax and is not eligible for the qualified business income deduction, and he would be allocated more business income that is not subject to FICA tax and qualifies for the qualified business income deduction. After considering the potential benefits, Troy decided to cut his salary in half.
https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-employees-shareholders-and-corporate-officers
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