Income splitting - legal but what about an IRS audit?

C corp is making too much money...

[limitup]

I run my site under a c corporation that is making A LOT more money this year than I planned. Even if I pay it all out to myself and my wife in the form of salary in order to avoid double-taxation, I will still have to pay payroll taxes, etc. on these huge amounts.

It's too late in the year to convert it to an s corp, so I was thinking of setting up a new and separate s corp. Then just have my c corp pay my new s corp huge "consulting" or other fees, which would effectively move the money into my new s corp and allow it to flow to my personal tax return and avoid payroll taxes.

Technically this is legal, but would it hold up if I got audited? What would I need to do to make the "consulting" fees legit in the case of an audit?

My CPA is lame ... he says "oh no you can't do that!" when I know for a fact that you can. I need to find a more aggressive CPA...

[gopi]

Ya , you can do it ...Just have maybe 2 s-corps so that you dont have to shift all income to one alone ...Also make sure to have some paper trials (like RFQ's , invoices etc etc) and if possible have an employee (apart from you and your family) or two in the s-corp ...Dont worry you will be fine!

You know some aggressive souls out there are even playing with multiple c-corps all with different fiscal years and juggling income back and forth and so theoritically avoiding tax forever :)

PS:-

C-corp owners , a potential win by kerry may result in dividend tax back to 35% from 15% so plan accordingly

[limitup]

Thanks for the reply. I think I may have missed something though on my first post. Even if I get the money into the S Corp, I will then have to pay 15+% in self employment taxes I think, which means I might as well just pay it all out from the c corp in the form of salary and pay the payroll taxes. It would end up being about the same, but simpler overall. Hmm ... anyone else have any ideas aside from the common stuff like SEP plan, etc. to get money out of a corp and pay as little taxes as possible? The problem with retirement stuff is that I want the money now, not when I'm 60. Plus I already have a retirement plan that is going, well, according to plan.

[gopi]

>> Even if I get the money into the S Corp, I will then have to pay 15+% in self employment taxes

Not completely true . The advantage with S-corp is its a pass thro entity like LLC but unlike LLC there is no self employment tax on the income passed to the owner(s) .

But you have to pay yourself a resonable salary on which you will pay SE tax (payroll tax) half by you and half by the company (which is also you!)