qbteachmt
Level 15

@ronald 

"Wanted to know your take on this."

An S corp is required to pay through Payroll to those providing services per IRS requirements. It isn't optional as you seem to indicate here: "What some CPA's do is process salary to reduce NYC S corp tax while keeping in mind the AMT. "

Here: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical...

"Reasonable Compensation

S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.

The instructions to the Form 1120S, U.S. Income Tax Return for an S Corporation, state "Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation."

Under section 7436 of the Internal Revenue Code, the IRS has the authority to reclassify payments made to shareholders from non-wage distributions (which are not subject to employment taxes) to wages (which are subject to employment taxes). Several court cases support the authority of the IRS to reclassify other forms of payments to a shareholder-employee as a wage expense which are subject to employment taxes."

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