2004)). It has little to do with ratio of W-2 to dividends and everything to do with fair or reasonable compensation for services rendered. In most cases, paying the doctor a salary equal to 25 to 35 percent of collections should satisfy the reasonable compensation test, with the balance available to be paid out as a dividend. Anywhere online that you can look up the earnings of dentists, you see numbers like 100-200k, and then dentists come on here and comment that the average earnings for their area are 2-3x what those websites report. Moreover, in a partnership, a partner and the partner's spouse are not deemed to be employees with respect to the partnership. This would apply, for example, where an S shareholder-manager does not directly produce gross receipts but does assist other employees who are producing the day-to-day gross receipts.Some factors used by the IRS to determine reasonable compensation include: Timing and manner of paying bonuses to key people; What comparable businesses pay for similar services; The use of a formula for determining compensation; and. Why are estimates of dentist income always low. The information contained on Dentaly.org is not a substitute for appointments with your dentist, including regular checkups as recommended by the ADA/Oral Health Foundation. I own an S-Corp. (I'm a 3rd year dental student on the US east coast). Some years ago, I established a SEP-IRA retirement plan. By accepting all cookies, you agree to our use of cookies to deliver and maintain our services and site, improve the quality of Reddit, personalize Reddit content and advertising, and measure the effectiveness of advertising. The NHS pays its dentists between 35,000 and 70,000. They have a few prominent attributes that are important to understand, and differentiate them from S Corps. The S corporation is saving him $82,650 in medicare tax. What should I do? This figure is based on data from PayScale's salary survey of dental professionals in the UK. There is then the question of "reasonable compensation." The dentist's advisor should be questioned about the . What percentage of my practice net income can I remove from the corporation as dividends, free of federal and state payroll taxes? Youd have to consider the same question if he became disabled, god forbid. This website uses cookies to provide you with the best information and services possible. An S Corp must file its annual tax return by the 15th day of the third month following the end of the tax year, which means March 15 (unless the 15th falls on a weekend or holiday). Experienced. By consulting this site, you agree to always ask your dentist for advice before putting into practice any information contained on this site. By sharing this information I agree to be contacted by Dentaly.org and/or their partner clinics. Section 162 o. For any questions or concerns about your medical condition and/or deterioration of your state of health, always consult your doctor or your dentist. This is because S corporation shareholders are allocated their pro rata share of the S corporations QBI, and the S corporation deducts W-2 wages (which includes reasonable compensation paid to S shareholders), as an expense properly allocable to its trade or business, in calculating its QBI (Regs. In a salary/dividend split, the business owner will pay himself a "reasonable" salary from the S-Corporation's profits. Then there's the case of payroll taxes. Appx. It can get messy if the IRS believes owners are trying to hide wages behind distributions to avoid paying payroll taxes. For those who are an S Corp, what ratio of overall compensation to the dentist should be classified as salaried as opposed to dividends? Reasonable Compensation S Corp - Reasonable Shareholder Salary - WCG CPAs