Discerning compensation from dividends for shareholder-employees

The practice of exhausting corporate net income in the form of compensation to shareholder-employees is a hot issue for personal service corporations. Compensation paid to shareholders is a deductible expense to the corporation, whereas dividends payments to shareholders are not deductible by the corporation, resulting in a lower overall tax bill to the corporation/shareholder group. Ensure you understand how the IRS views compensation vs. dividends paid to shareholders.

This whitepaper will address:

  • Failed taxpayer arguments vs. successful IRS arguments
  • The dos and don'ts of shareholder-employees compensation
  • A recent professional services firm Tax Court case study

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For more information on this topic, or to learn how Baker Tilly professional services specialists can help, contact our team.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.