As I understand it, reasonable though your claimed salary might be, if you're making money on the difference between distros and salary (which stops being an issue at around the 100k point), you're filing returns with a big red audit flag on them. The tax savings probably aren't worth the heartache for a lot of people.
Not for nothing, but as an entrepreneur who has been in exactly the situation contemplated by this scheme: avoiding taxes by structuring your income as a "distribution" rather than salary is shady. I think it's unethical. People that don't happen to run S Corps don't get to do it. I'm prepared to lose the argument, so let me concede it in advance and avoid polluting the thread.
Well, as someone that quite likes the idea of things like social security and universal health care, I wholeheartedly agree that it's wrong to falsely deflate one's salary in an effort to avoid paying into FICA. But I guess it has never been argued to me that beyond the reasonable salary, it should be one's responsibility to pay excess profits as salary rather than distributions. I can't really find a good reason to hang my hat on. I think the entire reason S Corps exist are to encourage small businesses since we otherwise take on a lot of risk, no? Too bad that threads get polluted right when discussions get interesting. :-)
Not for nothing, but as an entrepreneur who has been in exactly the situation contemplated by this scheme: avoiding taxes by structuring your income as a "distribution" rather than salary is shady. I think it's unethical. People that don't happen to run S Corps don't get to do it. I'm prepared to lose the argument, so let me concede it in advance and avoid polluting the thread.