An S corporation operates a "pass-through" entity, meaning all corporate income and deduction items pass through to shareholders, who then report those amounts on their personal returns. Result: You owe personal income tax on your share of S corp profits.
So if you run your business as an S corporation, consider giving away some shares to low-bracket relatives, including your children, who'll owe less income tax. Share giveaways also can reduce
Pour income into different buckets
Say you and your spouse are the only shareholders in XYZ Co., an S corporation. You are an employee, but your spouse isn't. In 2004, XYZ shows net income of $400,000, paid to you as salary and bonus.
Instead, you could pay yourself $120,000 salary as long as you can demonstrate that's comparable to other top executives' earnings at similar companies. The remaining $280,000 balance ($4...(register to read more)