definition of compensation for SIMPLE
If business owner is setting up SIMPLE for his business, the business is an LLC. the business owner is drawing W2 income and dividends or draws from the company, does the IRS count W2 and dividends as compensation to determine required employer contribution?
Permalink Submitted by Alan - IRA critic on Thu, 2013-09-05 23:48
Just the W-2 amount, no dividends.
Permalink Submitted by mk foss on Fri, 2013-09-06 01:55
The IRS has indicated that an LLC that’s taxed as a partnership does not pay salary to owner-employees. Based on that the net profit from the LLC reported on Schedule E and subject to SE taxes is what compensation is based on. If it’s a single member LLC, it would be the Schedule C profit. In either case, the compensation is adjusted for the page one deduction of SE tax. Alan is correct if the LLC has elected to be taxed as a corporation – either an S corporation or a C corporation.