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S Corp owners can't dodge employment taxes

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. I’m confused about something. I’ve operated an S corporation for several years and always showed a loss. For the first time ever, I had a profit. Does that mean I have to pay self-employment tax? M.L.P., Salt Lake City

A. Not exactly. In any year, an S corporation shareholder must pay FICA tax (for Social Security and Medicare) on salary taken from the corporation, whether or not the corporation shows a tax loss. But if you received no salary, there’s no FICA tax. And the FICA tax doesn’t apply to other distributions from the corporation. Tip: Half of the FICA tax is withheld from your salary checks (if any); the other half is paid directly by your S corporation.

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