Wednesday September 14, 2016
There are actually three big red flags for an S Corporation that you need to watch out for when it comes to the IRS:
#1) Not taking a salary from a profitable S Corporation. If you have an S Corp with a profit, you need to take a salary. I have a general rule of thumb on this one, so please call me before making any changes. If you are turning a reasonable profit and you don't take a salary, chances are you are going to get an audit by the IRS.
#2) Not properly reporting medical insurance premiums. The medical insurance premiums that your company pays on your behalf are not deductible. The corporation can not use these as deductions, but you as the individual may be able to.
#3) Not tracking your basis for losses. If your S Corp has a loss, you don't automatically get to take that loss against your other income. The IRS is going to want to see that you have sufficient basis. Basis can come in one of two ways: equity basis (which means you have invested enough in the company to cover any losses) or loan basis (which means you have loaned enough money to the business to cover the losses).
Remember to give me a call before you make any changes. If you are unsure of something, please ask!