Blue is the owner of all of the shares of Blue Bell, an S corporation. Blue is considering receiving a salary of $110,000 from the business. She will pay the 7.65% FICA taxes on the salary, and the S corporation will pay the same amount of FICA tax. If Blue reduces her salary to $50,000 and takes an additional $60,000 as a cash distribution from AAA, how will her Federal income tax liabilities change?
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Blue is the owner of all of the shares of Blue Bell, an S corporation. Blue is considering receiving a salary of $110,000 from the business. She will pay the 7.65% FICA taxes on the salary, and the S corporation will pay the same amount of FICA tax. If Blue reduces her salary to $50,000 and takes an additional $60,000 as a cash distribution from AAA, how will her Federal income tax liabilities change?
|
Blue Salary |
110000 |
|
W-2 7.65% |
8415 |
|
CO 7.65% |
8415 |
|
Total FICA |
16830 |
|
If Blue's salary is reduced |
50000 |
|
W-2 7.65% |
3825 |
|
CO 7.65% |
3825 |
|
Total FICA |
7650 |
|
FICA Savings from salary reduction |
9180 |
Blue should make sure she documents that the salary reduction is appropriate for the compensation associated with her business or the IRS may recharacterize the reduced portion as wages.
Salary- Salary refers to the remuneration paid by an employer to its employee as a reward against his/her rendered service.
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