My boss wants to make me a 10 percent owner in the business. Does anyone know how this affects my tax status?

Question

This is a corporation.

This is an S Corp

Answer 1

You need to know the tax status of the corporation (e.g. LLC, "C" corporation or "S" corporation.

The 10% of the shares of any of the three types of corporation you received is ordinary compensation (less anything that you pay for the shares) that goes into your W-2. You and your boss will need to find a way to pay your taxes (withholding, social security, etc.) at ordinary tax rates on your receipt of the shares.

If the corporation is an S corporation, or an LLC that has elected to pass through the corporation's income to its shareholders, you will pay tax on your 10% share of the corporation's income at ordinary tax rates.

If the corporation is a C corporation, or an LLC that has not elected to pass through the corporation's income to its shareholders, you will pay tax on dividends from the corporation at a special 15% tax rate.

In both cases, you may need to make estimated quarterly tax payments.

In either case, you will continue to pay tax on the salary or wages that the corporation pays you at ordinary tax rates.

Answer 2

I would need more information to determine how it will effect your taxes, for example, is the S-corp earning or losing money? (An S-corp that generates losses in excess of basis can create capital gains. ) How does the owner intend to determine the value of your portion? (Should be included as compensation.) What other benefits are you receiving besides wages and will those still be provided if you are a more than 2% owner in the company? (Many are not deductible to the company if you own more than 2%)
Since there are many complicating issues, I would try to find a CPA to work with. Perhaps schedule a time to talk to the company's CPA and get additional information.

Answer 3

A corporation pays its own taxes. Though if you were to receive a dividend then you would need to pay taxes on that money.

Obviously if your salary increases as a result of you becoming a 10 percent owner then that may effect which tax bracket you are in.

Answer 4

It will definitely effect your taxable income depending on company profits and how they are dispersed. The really important issue is how it effects your liability in the event of lawsuits, regulatory fines, etc. I believe I would make a deal for a percentage of profits or a salary increase instead. Consult a tax attorney at the very least and require copies of all financial documents for the previous 5 years.

Answer 5

take to a lawyer and have a cpa read all the books to ensure ntoghin fishy is going on