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[BizTalk] If you're a sub chapter S store

I’m a member of a CPA/accountants online group, kind of like
Polygon, although I’m neither.

Someone posted today an article about Sub Chapter S companies NOT
paying the owner enough money. If you’re sub chapter S, you can pay
distributions which aren’t subject to med care/fica, only income tax,
saving a lot of money for the owner as Sub Chapter S owners file the
tax return and all sales and expenses goes on their personal tax

But the IRS doesn’t like you to take a LOW salary to evade those med
care/fica taxes.

The article is a one pager, easy to read.

Below is a response to THAT article from a CPA I’ve known (never
spoke to) for years.

The IRS is adding 14,500 new agents to TRIPLE Sub Chapter S audits.

Time to play by the rules.

Read if it interests you. David Geller

The CPA’s remarks:. You must NOW, for the first time, insist that
clients STOP saying they will wait and see if the IRS comes after
them on this issue.

You can tell them, with absolute authority, that the IRS WILL
definitely come after them if they do not have owner salaries for
profitable S corps. IRS is adding 14,500+ new agents to triple the
number of total S corporate audits. All new agents will target this
"no owner salary issue."

You can be sure this will happen, due to a recent IRS Florida pilot
program for S corp construction companies with no owner salaries. My
clients, netting less than $30,000, paid no owner salaries unless
they had commercial space. I reported payroll of 10% to 35%, on those
with commercial space or making more than $30,000, with a $7,000
minimum. The $7,000 minimum avoided problems with Florida auditors
going door-to-door, as that was the Florida unemployment maximum.

When IRS announced the program, I insisted on 35% salaries for all S
corp construction companies. The one that refused soon had an IRS
exam. The agent insisted on owner salaries of MORE THAN 100% of
APPEAL (I often go to Appeals and the Tax Court). My fee, and the
resultant tax, penalties and interest, put the company out of

As the Tax Court story properly says, hogs get slaughtered.


i am a cpa and the term is being used incorrectly. one does not
"depreciate" inventory. one uses the "lower of cost or market (LCM)"
valuation. not only is it not against the law, the irs does not have
a problem with it. that is why, if one prepares a schedule c, one
should select LCM or you have to explain why you are changing your
valuation method. you are supposed to write down inventory when it is
no longer worth what you paid for it. it should not be haphazard
though, just because you want to lower your taxable income. it has to
have a solid reason why and you should keep substantiation of why it
has lost its value.

many companies purchase large quantities of an item, only to get
stuck with it because something greater came along and they couldn’t
give it away. the time a loss is recognized is when it is known to be
a loss, not when it is sold for scrap or donated, etc.

the irs reference you give says you cannot depreciate inventory, and
that is correct, because you cannot. but you “write-down” inventory,
which is what is done when you “write it down” to the lower of cost
or market. there are many ways to cost–first in first out, last in
first out, actual cost, etc.

hope this helps some.

Hi Anne

Thanks for your post. I have sent ganoksin another long post about
this. Your paragraph reads:

you are supposed to write down inventory when it is no longer worth
what you paid for it.

You’ll see in the next post the supreme court says differently, it
must leave the store, it can’t stay in the store and be a lower
value. IT CAN in things like electronics where a newer/better comes
along at a lower cost or even the SAME thing comes out at a new
lowered price (computers are a great example.

But jewelry is replaced for less these many years. Its replaced for
more money.