another tax question: filing as a PC

[Wynton]

Quick question for the CPAs.

I'm a lawyer and a sole practitioner in NY. My accountant advises me to become a PC solely for tax purposes. Specifically, he says that, if I'm a PC, I can pay myself a nominal salary and that the social security tax will be based only on that amount. Then, I can distribute payments to myself above and beyond the salary, and they will not be subject to the social security tax.

According to him, the savings can be substantial.

Is this advice correct?

[TLC]

There's a risk that the IRS won't deem your "nominal salary" as reasonable compensation (aka undercompensation). Also, you need to consider how close to the $97,500 wage limit this "nominal salary" would be for a lawyer in your position.

[Wynton]

How about this hypothetical:

Say my net profit was $110K, and I paid myself a salary of $30K. Is that arrangement just begging for an audit?

[Poker CPA]

Ask your accountant what his success rate is with payroll agents from the IRS. If you get a payroll audit notice, you are paying, sure as chit. Its the kind of thing that goes like this; you say 30/110, he (the agent) says 50/90; you say 40/100, he says 60/80; and on it goes. He's success rate should mirror this "thats not good enough" give and take. It comes down to "facts and circumstances", such as hours worked a year, what lawyers earn in your area and the like. If I was an payroll auditor in NYC, examining a reasonable lawyers compensation, I'm shoting for the full SS limit, about 98K. My father is handling a case like this in a nearby state, I'll let you know how he makes out. His client told him that he'll settle for anything, just get him the f out of here. LOL

Yes you are begging for a payroll audit, which could reach into your 1040. Its the old "by the way could I have a copy of your client's 1040, just for the record". If the the statute of limitations comes into play, take your time. I think its best to settle quickly, if given the option.

Good Luck