Profit vs salary

[victoria]

Probably a v dumb question but hey ho. When the Embassy is looking at an E2 renewal does it make any difference to them if you've taken out a relatively healthy salary & the business hasn't made much of a profit or are they expecting to see "idle" cash? Business is growing & have 2 US employees who are paid a small fortune (roughly on target with business plan I think although expected to have more employees - but much tougher to recruit than expected) & hoping that this will be sufficient. Any one been there done that?

[davidmartin_uk]

I asked our Visa Lawyer that question a few months ago and he said it didn't matter. Do whatever is best to maximize your tax position. We pay ourselves a pretty small salary and top it up with Officer loans and bonuses at the end of the companies financial year.

Dave

[victoria]

thank you that's very helfpul (bit late me asking now given what's done is done...)
Am sure my healthy would be pretty small in most pple's books!

[Grumpy]

I asked our Visa Lawyer that question a few months ago and he said it didn't matter. Do whatever is best to maximize your tax position. We pay ourselves a pretty small salary and top it up with Officer loans and bonuses at the end of the companies financial year.

Dave

so is it cost effective to have a low salary and high dividend at the year end? I used to do this in the uk and legally avoided NI contributions on my divi. So if you do this in the US do you save on the amount of social security payments

[davidmartin_uk]

That’s what I have been told by our accountant. The trouble was we had a business with ever changing owner benefit, very high in the summer, not bad in the winter and very low at other times. We found in the summer we were being taxed very high amounts. Of course you get it back in a rebate but not when you need it!!! We pay ourselves a very small salary that is the same every week. Not really had a tax bill for the officer loans yet as we only started doing that last year and our corporate tax year runs till October 31st. I will let you know!!!!

Dave

[Carl]

We have found that what accountants say, whilst very good advice, is not what Immigration want, perhaps you would be better off with a good salary and 2 employees, then when you have your 5 year renewal, take a lower salary and higher dividends for a few years then back to a higher salary for your next renewal.

Just a thought.

Carl.

[davidmartin_uk]

Didn't write that correctly above. We checked out the info with our visa lawyer first and he said it didn't matter what you did, as both ways would show on a tax return that you were not marginal, either good enough owner wages or a good enough company profit. We then asked our accountant the best way to minimise tax and he led us down the low salary path.

dave

[Matthew L. Bell, C.P.A.]

Hi Guys,

I was searching the post & figured that I would resurrect an old one & throw in my 2 cents.

The IRS regulations state that officers & stockholders of S-Corporations are required to pay themselves a "reasonable salary" as compared with industry standards. Unfortunately, there is no hard & fast guidance in the current tax law of exactly what this means.

For most of our clients that have S-Corporations, we generally recommend paying out about 50% of the net income (income minus expenses) as a salary. This keeps the IRS happy and also saves on some Social Security & Medicare tax. On a net income of $100,000, this would save $7,650 in taxes compared to a partnership or sole proprietor structure.

Kind regards,

[britcan]

Hi Guys,

I was searching the post & figured that I would resurrect an old one & throw in my 2 cents.

The IRS regulations state that officers & stockholders of S-Corporations are required to pay themselves a "reasonable salary" as compared with industry standards. Unfortunately, there is no hard & fast guidance in the current tax law of exactly what this means.

For most of our clients that have S-Corporations, we generally recommend paying out about 50% of the net income (income minus expenses) as a salary. This keeps the IRS happy and also saves on some Social Security & Medicare tax. On a net income of $100,000, this would save $7,650 in taxes compared to a partnership or sole proprietor structure.

Kind regards,

Appreciate what you say re IRS requirements but the essence of this question is what the UCSIS are after upon renewing visa...2 different perspectives unfortunately

[Matthew L. Bell, C.P.A.]

Hi britcan,

I totally agree. I was actually trying to answer a question further down in the post concerning the taxation issues of salary vs. S-Corp. dividends.

Kind regards,

[Susie]

Hi britcan,

I totally agree. I was actually trying to answer a question further down in the post concerning the taxation issues of salary vs. S-Corp. dividends.

Kind regards,

Hi Matt

Thank you for search old posts on taxation matters, I am sure you will find other too and If I manage (or anyone else) manages to find any can they copy and paste the questions in "Ask CPA a question" that way we will build up an encyclopedia of information, thaks:)


Can I ask

So assuming we are a LPR it should not matter if we show little to no profit, correct ? (unless of course the owner is thinking of selling the company)

So in the USA, is it similar to the UK whereby we can draw a low salary, where we pay social security on these low wages, and then later in the year award ourselves a big dividend and legally avoid pay social security on the dividend element?

I will copy and paste my question and your answer in the "Ask CPA a question section"

Thanks for your support, truly appreciate it :)