- On January 24, 2017
“Dot Your I’s and Cross Your T’s”
Legal Formalities Matter
Applicable to S-Corporation owners, the Tax Court recently ruled that an individual taxpayer, rather than his S-Corporation, should have reported income earned from a business contract because the taxpayer:
- Failed to implement a proper employment contract with his solely owned S-Corporation.
- Signed the business contract in the taxpayer’s individual capacity instead of on behalf of on his S-Corporation.
The taxpayer’s failure to follow legal formalities resulted in the advisor having to report the business contract income on his Individual Form 1040 as self-employment income and not on his S-Corporation tax return – a very bad result. The taxpayer did not help his case either by arguably not having his S-Corporation pay him a “reasonable amount” of compensation.
To avoid such problems, consider asking your tax attorney:
- Are your tax and business affairs in proper legal order?
- Do you have the necessary employment and other agreements in place with your S-Corporation?
- Have your S-Corporation’s contracts with customers, suppliers and other third parties been recently reviewed by a lawyer?
- Is your S-Corporation paying you “reasonable compensation”?
Kelleher & Buckley, LLC is the place to start when exploring tax and business issues. K&B has the experience, knowledge and relationships to successfully assist you. If you have any questions about our services, or can benefit from what K&B offers, please call Andrew Kelleher, David Buckley or Vas Russis at (847) 382-9130. Please note that this discussion is not intended to be, and is not, legal advice.