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Tax questions surround the activities of many small, closely-held businesses. According to tax gurus, principals of closely-held businesses should carefully consider how to pay themselves. Balance is key to avoiding an audit, say tax advisors.
For example, a principal of a closely-held company takes a very small income from the business. When IRS reviews the company, they ask about the principal's intention in doing so. The Complete Guide To Executive Compensation prompts the question about why closely-held company owners pay themselves small incomes (as dividends or other distributions). The IRS proposes that such distributions (mistakenly) convince the principals about the need to pay FICA.
Any of these scenarios may make the closely-held company a potential audit target when too little money is taken out of the business.
Conversely, paying out too much of the company's assets as compensation from a family partnership creates a possible tax consequence. Family partnerships propose to protect or conserve the company's resources, and are part of an overall estate plan.