The shareholder of an S corporation can reduce income taxes by passing income to the owner-employee as a dividend rather than paying salary.

Question

Quizplus · Accepted Answer

This statement is false. Shareholders of an S corporation cannot pass income to the owner-employee as a dividend to reduce income taxes. Instead, the income of the S corporation is passed through to the shareholders and taxed on their individual tax returns, based on their proportional ownership of the company. Shareholders who are also employees must receive reasonable compensation for their services, which is subject to payroll taxes and income taxes.

The Shareholder of an S Corporation Can Reduce Income Taxes