S Corp Question

Tax Strategies
1

Hi Mark & Matt
Frequent listener, KKOS law office customer and trying to be CPA customer - anxiously awaiting your new CPA Program

I’ve asked this question to two of the KKOS lawyers, received great answers but remain stuck. PLEASE HELP!

My husband is a Licensed Professional Engineer K-1 Partner in an engineering/construction company. When he was offered ownership years ago we were not advised to have his ownership in an LLC or an S-Corp, so it is in his personal name. His compensation is: guaranteed payments, a bonus and dividends, typically over $2mil. total.
It sickens us to pay all of the taxes we could be avoiding using your S-Corp strategy. Last year we paid $1mil in taxes.

Here is the rub:

  1. our accountant does not see the value in the S-Corp AND he is the CPA that audits the company. (We can change accountants)
  2. the senior partner/majority shareholder is the only partner using an entity - the four other partners are all compensated in their own names. No one in the group is aware of the strategy and my husband does not want to rock the boat by bringing this up to the Sr Partner (who is quirky - but may be retiring soon))

What do you recommend we do? Is there a personal liability reason we could use to change this situation?
We can easily handle creating the entity but what exactly needs to happen to get his compensation paid to him correctly?
Is there a way to add an entity between his name and a new
LLC/S Corp so he does not have to go to his team and request changes there?

As you know this could save us $50k-$100k a year - we are sick about it.

2

Interesting scenario. What is the structure of the business itself and how is the business taxed? You mentioned that husband gets a K-1 so he is obviously a partner receiving dividends/distributions and saving on medicare taxes on that portion. He must be getting a W2 as well. It sounds like the company may already be being taxed as an S-corp, is that correct? If so, is it even possible in his situation for him to be taxed in a way other than an employee/partner? I don’t know nearly enough with regards to the mechanics of an individual who is a partner in a company and performing work there and subsequently being taxed under as an entity and not under his own name as an individual.

Very interested to see more commentary here.