Attention S Corp. Owners

IRS audits now routinely review S corp payments to shareholders to see if payroll taxes are being avoided by treating payments to shareholder-officers as loans or shareholder distributions of cash or property.  An officer performing services for a corporation is entitled to payment; those payments are to be wages.  For federal employment tax purposes, corporate officers are employees.  You must pay a fair and reasonable wage.  Avoiding employment taxes by treating compensation as cash distributions, expense reimbursements, or loans rather than wages is illegal.

Please consult your tax adviser or visit www.irs.gov for clear and complete details.

Tax Deduction for Babysitting

If you have a parent who watches your child (defined as under 13 years of age) while you’re at work, you may be eligible to deduct what is paid to them on your tax return.  There are two basic requirements that must be met in order to take this deduction:

1.  Your spouse must also work (or is a full-time student or disabled) and;

2.  You don’t claim your mother or father as a dependent on your tax return.

If you meet these requirements, you most likely can get a tax credit of between 20 percent and 35 percent, depending on your income, of what you pay your parents, up to $3,000 ($6,000 if you have more than one child).  Claim your tax break on IRS Form 2441.

Please consult your tax adviser or visit the IRS website at www.irs.gov for more information.