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Intent to compensate for personal services is a necessary component for deductibility

Article Abstract:

Payments to corporate employees and directors may not be deductible as business expenses unless intent to compensate can be demonstrated. Unintended tax consequences can be prevented by structuring compensation as salary, especially for S corporation stockholder-employees. A two-part test is used to examine the deduction of compensation paid to corporate directors and employees: if the amount is reasonable for services actually rendered, and if the payments are made purely for services. Factors used in determining intent to compensate include: original treatment of the item for corporate and individual taxes, the company's dividend payment history, board of directors' minutes, and the proportionality of payments to share ownership. Taxpayers cannot change classification of payments once a choice is made between dividends and compensation.

Author: Isaacs, Anne, Davis, P. Michael
Publisher: Warren, Gorham & Lamont, Inc.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1987
Tax deductions

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Complicated rules issued for determining which employees are highly compensated

Article Abstract:

Benefit plans must demonstrate that highly compensated employees are not favored over others. The complicated procedures to identify the highly compensated group begins with a review of data for the current year and the preceding plan year. This group of active participants must be enlarged with former employees for welfare plans. Employees who do not meet age or service requirements can be omitted from the calculation of the top-paid 20%. Compensation must include salary deferral contributions to a Section 401 (K) plan, a cafeteria plan, or a tax-sheltered annuity.

Author: Weiler, Claire A.
Publisher: Warren, Gorham & Lamont, Inc.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1988
Compensation and benefits, Executives, Executive compensation, Tax shelters

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Payments for sickness and injury are not always excludable from taxpayer's income

Article Abstract:

Definitions of disability income, sick pay, personal injury payments and worker's compensation payments are discussed, as are the varying rates of taxation for each of these classifications of employee wages and employee fringe benefits. The tax rules and regulations governing wages received while unable to perform work are complex, and this discussion is designed to categorize such payments as those that are fully taxable, those that qualify for tax credits or partial taxation, and those that are fully excludable from taxation.

Author: Evanich, John L., Jr., Purcell, J. Michael
Publisher: Warren, Gorham & Lamont, Inc.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1986

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Subjects list: Analysis, Taxation, Wages, Wages and salaries, Employee benefits
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