S-corp questions - Posted by Jeremy

Posted by Dave Murray, Ohio CPA on August 26, 2003 at 13:39:01:

Keep reseaching! An S corp can also deduct its share of FICA. S Corp Shareholders deduct 100% of their health insurance on the face of their return. And life insurance premiums are NOT deductible by either C Corps or S Corps.

S-corp questions - Posted by Jeremy

Posted by Jeremy on August 23, 2003 at 19:17:04:

Hi everyone,

After meeting with the CPA that my partner has used for years, she told me how much better a C-corp is than an S (We are an LLC, but trying to figure out how to be taxed)…even for exclusively flipping properties.

Basically, she said that the IRS is going to want FICA/Social Security taxes on ALL income/profits regardless of your filing as an S-corp and claiming a “reasonable salary.” Has anyone else found this to be the case or do you think this CPA is too conservative? Almost every article I’ve read – not just on this site – seems to say that’s the big benefit of the S-corp…that your dividends don’t get the self-employment tax.

Also, about the “reasonable salary.” They say to look for the industry standards in the field to compare salaries. Since that’s more difficult in RE investing, does anyone else use any guidelines? Would 50% of profits as a salary be enough to satisfy the IRS. I understand that I wouldn’t be receiving legal advice, but just some help from those that have been through it would be appreciated.


Re: S-corp questions - Posted by Dave Murray, Ohio CPA

Posted by Dave Murray, Ohio CPA on August 26, 2003 at 10:52:24:

Although I agree there are POTENTIAL problems regarding the issues you bring up (and this is a complicated area) I would not dismiss the use of an S Corp. at all. In fact, many (probably most) of our real estate clients are structured this way. There are a lot of factors that go into making a “reasonable salary” decision. The easiest thing to do is just set up a C Corp and ignore the issue. If you are comfortable with your CPA taking that stance, then proceed. I wonder how much that CPA is collectively costing her clients if she is this conservative in all gray areas??

Re: S-corp questions - Posted by Jeremy

Posted by Jeremy on August 26, 2003 at 13:27:23:


Thanks for the response. I’ve been doing some more research on the subject which makes a C corp seem more attractive than I originally thought – such as the corporation is able to deduct its share of the FICA taxes that it pays. Add up the extra benefits (medical, life insurance, etc.) that a C allows and maybe that’s the way to go.

Though I’ve learned the IRS will scrutinize the salaries in a C-corp just as much as the S-corp, but for the opposite reason – to make sure they’re not too high. I guess it’s easier to prove that what I’m doing as services is vital for the company’s profits and therefore justifies a high salary.

Nothing’s clear, though, with the IRS, huh, LOL