Results 1 to 9 of 9

Thread: Tax question Minnesota

  1. #1
    Senior Member
    Join Date
    Nov 2008
    Posts
    148

    Default Tax question Minnesota

    If an owner of a business is on payroll and making about $90,000 a year which they pay the correct taxes on can they really access directors fee's that are tax exempt? How does that work?

  2. #2
    Super Moderator
    Join Date
    Jun 2006
    Location
    California
    Posts
    12,261

    Default

    Directors fees are not tax exempt. Directors fees may (or may not) be something other then wages, but directors fees are always subject to federal income taxes.

    Now you mentioned the word "owner". This is too complicated to explain quickly but basically all businesses are either corporations or not. The "not" could include "sole proprietorships" or certain types of "partnerships", or even certain types of corporations. What used to be fairly simple has really been run through the tax code blender over the years. But very basically if Jim owns a candy shop, and is not incorporated, then Jim is likely subject to taxes on all income earned by the candy shop WHETHER OR NOT Jim is actually paid that income. If on the other hand Joan is an employee of the candy shop, Joan is normally subject to taxes only on those wages actually paid to her. Now if Joan marries Jim, nothing automatically changes. Maybe Joan is still an employee. Maybe Joan is now a co-owner. Maybe a lot of things. Maybe Joan's dog Spot runs a hostile take over and kicks them both out.

    It takes a lot of information concerning the exact legal structure of the enterprise to give a good answer to your question. But the notion that calling a payment a "direct fee" somehow magically makes taxes go away is simply not true. The payment is a wage, or it is not-wages, but either way, it is still income.
    "Reality is that which, when you stop believing in it, doesn't go away".
    Philip K. **** (1928-1982)

  3. #3
    Senior Member
    Join Date
    Nov 2008
    Posts
    148

    Default

    Thank you for your reply
    The company that I work for is incorporated. The owner pays themselves directors fees. I am able to see our check registry as part of that stuff is my job except not paying employees and he does not take any tax out on these payments and I thought that was really odd when I saw it years ago but didnt think to ask about it. He has been doing this for years so is this tax fraud?

  4. #4
    Super Moderator
    Join Date
    Jun 2006
    Location
    California
    Posts
    12,261

    Default

    Are you saying that you personnally have reviewed the owners 1040s and that as a result of this review, you are certain that the "director fees" have not been declared as income?

    Past that, I can say that there is a 100% chance that "director fees" are (at least) taxable income that must be declared by the taxpayer on the 1040. There is a real possibility that the payments are also legally wages, subject to normal payroll taxes.

    Now could there be "fraud" involved. Maybe. Do I care? Not even a little. I do not have enough information to begin to answer a question like that. If I cared (and I do not), I would want to see the 1040s, plus the payroll records, plus I would want to know exactly what type of corporation legally we were talking about and likley see the 1120s. I would also want to talk to the "owner" and get their side of the story. That would be the absolute minimum "due diligence" needed before I went around accusing people of fraud.

    Is this legally any of your business?
    "Reality is that which, when you stop believing in it, doesn't go away".
    Philip K. **** (1928-1982)

  5. #5
    Senior Member
    Join Date
    Nov 2008
    Posts
    148

    Default

    I guess I never thought about it like that. Maybe he is paying tax on these wages at the end of the year and not at the same time as he is paying himself. That makes sense. (I can see the compay check details which includes payroll and pay check details) Not any tax forms.
    p/s Really not knowledgable on anything related to tax except personal taxes as you sound to be with corporate, sorry that you may have gotten frustrated with me.

    As far as this being legally any of my business I feel that it is, just like it is everyones business if they believe that somebody is commiting a crime.. ANY CRIME. Thats why I asked. But as you said there probably isn't a simple answer to this question without asking many more questions.
    Thank you for your time and responses

  6. #6
    Senior Member
    Join Date
    Jul 2009
    Location
    California
    Posts
    340

    Default

    Quote Originally Posted by Kris23 View Post
    As far as this being legally any of my business I feel that it is, just like it is everyones business if they believe that somebody is commiting a crime.. ANY CRIME. Thats why I asked. But as you said there probably isn't a simple answer to this question without asking many more questions.
    Thank you for your time and responses
    If you feel that it is your place to look at company records on company time to try to find out if the owner is doing something illegal, I feel you are, at the very least, seriously mistaken. It is one thing to observe a bank being robbed and report it. It is very different to conduct a witch hunt on something just because you don't understand something that you see in the course of your job, in this case records of payments to the owner as a director.

    There are many ways that what you describe could be perfectly legal. Is it in this case? I don't know. But, I doubt that it is in your job description to nose around into things that are none of your business to see if you can find evidence of illegal activity. So, your activities probably constitute breach of trust in misusing information that you have access to as well as misusing company time and resources trying to identify what the owner is doing.
    Please post questions on the forum rather than sending me a private message or email. That way others who have similar issues have access to the discussion.

  7. #7
    Super Moderator
    Join Date
    Jun 2006
    Location
    California
    Posts
    12,261

    Default

    Agreed, although it depends a lot on one's job. I have been in charge of payroll at most places I worked. Meaning that failure to correctly report and tax wages would reflect on me even if the brass was the one playing games. Being an internal auditor would have similar issues. Being someone with SOX responsibilities could cause issues.

    But being Batman, going out and fighting crime without any legal cover is a tricky situation. Especially with greatly inadequate information to base one's decisions on. I am not saying yes or no, but this is the sort of situation that I would want to think through very carefully. If (for example) I thought that the main companies books were being cooked (and I have worked for at least one employer where I thought that was true), then it would matter very much to me exactly which job I had at that employer. My decision at that one company was to move to a different company (quickly). I was not the person doing the "cooking" and had no certain information of my "facts", but also had no desire to be standing around without a chair when the music stopped.
    "Reality is that which, when you stop believing in it, doesn't go away".
    Philip K. **** (1928-1982)

  8. #8
    Senior Member
    Join Date
    Jul 2009
    Location
    California
    Posts
    340

    Default

    Very good points, DAW.

    I get the impression that the OP may be a disgruntled employee looking for evidence to give to the IRS in order to get a big payoff for turning in a tax cheat. But, even if that isn't the motivation, for anyone who does not have the responsibilities that you describe, the activity to "investigate" would be unethical and could cross the line into illegal.
    Please post questions on the forum rather than sending me a private message or email. That way others who have similar issues have access to the discussion.

  9. #9
    Senior Member
    Join Date
    Nov 2008
    Posts
    148

    Default

    Wow, I am not either of those things. I just like learing new things and by asking questions that is how you learn and I didnt want my company to get into trouble for an ignorant mistake (intentionally or not) by my boss. Although some of both of your responses were borderline insulting, I am glad that you guys could have a great time with all your speculation.. which is the same thing that I am guilty of.. LOL
    If you would like please continue it is quit entertaining..

Similar Threads

  1. Is the income tax a direct tax or an excise tax?
    By Dale Eastman in forum Federal and State Tax Law
    Replies: 28
    Last Post: 03-06-2011, 11:59 AM
  2. US v Schiff
    By JJ in forum Federal and State Tax Law
    Replies: 3
    Last Post: 07-24-2005, 01:36 PM
  3. Income Tax Liability 101
    By ChristianAnarchist in forum Federal and State Tax Law
    Replies: 0
    Last Post: 07-08-2005, 09:06 AM
  4. 861 Loser - The Dashiells
    By Richard Macdonald in forum Federal and State Tax Law
    Replies: 2
    Last Post: 06-09-2005, 05:55 AM
  5. FT: Flat tax fans point to 'success' in Europe
    By sufaud in forum General Tax Law
    Replies: 0
    Last Post: 03-31-2005, 11:20 AM

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •