the IRS will treat the capital-gains as real income and will tax the CEO at the higher personal rate.

Maybe. But you have to have capitol gains to tax. Not all companies have gains, even when assessing a fair value to the stock. The reason is many investment activities fund activity that does not necessarilly have value that can be realized until the company is sold. For example research and development. For example, locking down a 20 year contract on a prime tower needs to be looked at as an asset for a sale activity, but as a liabilty for tax purposes. The value can't be proven until someone pays for the company to establish the value.

Tom DeReggi
RapidDSL & Wireless, Inc
IntAirNet- Fixed Wireless Broadband

----- Original Message ----- From: "Larry Yunker" <[EMAIL PROTECTED]>
To: <[EMAIL PROTECTED]>; "WISPA General List" <wireless@wispa.org>
Sent: Friday, December 15, 2006 11:56 AM
Subject: Re: [WISPA] salary


----- Original Message ----- From: "Peter R." <[EMAIL PROTECTED]>
To: "WISPA General List" <wireless@wispa.org>
Sent: Friday, December 15, 2006 8:34 AM
Subject: Re: [WISPA] salary


Check with your CPA on that.
The IRS likes to see salary and other activities that represent that your "company" really is a company and not a tax shelter so that you avoid the sole proprietor tax schedule. (It's called piercing the veil -- if you don't have minutes and annual shareholder meetings and run it like a business, you lose the corporate shield for tax purposes AND for liability as in civil litigation).

I think you are on the mark here... according to what I picked up through my Business Planning coursework, the IRS has fairly consistently applied a reasonableness test to the salary of a CEO who is also a majority shareholder. But reasonable is a fairly broad term. Zero would not be reasonable in any case, but $10,000 or more might meet the reasonableness standard for companies with limited revenues. On the other hand, if your company is turning $1MM in sales, you better be paying your full time CEO substantially more than $10,000 because the IRS will see right through that ploy. In addition, if you try to pay the CEO through an incentive program (dividends or stock options) in lieu of salary, the IRS will treat the capital-gains as real income and will tax the CEO at the higher personal rate. You have to provide a balance of salary and other non-salary incentives in order to get the maximum tax advantage.

- Larry




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