Dr. Sanders is a veterinarian who is the sole proprietor of Vet, Inc., an S corp

Question

Dr. Sanders is a veterinarian who is the sole proprietor of Vet, Inc., an S corporation. The corporation offers Dr. Sander’s consulting and surgical services to other veterinarians. Dr. Sanders does not receive regular payments from the corporation, but withdraws funds as the need arises. During the current, he withdraws $118,000, and the net income of the corporation is $225,000. The corporation does not deduct the $118,000, nor does Dr. Sanders include it in his gross income. He does, however, report the $225,000 in his gross income. Because Dr. Sander’s has recognized all of the corporation’s income, he sees no need to pay himself a salary. He justifies the treatment by arguing that he is not an employee. (he is the owner.) of the corporation and that the federal income tax consequences are the same. Evaluate the approach taken by Dr. Sanders and Vet, Inc using.

Explanation / Answer

Dr. Sanders is a sole trader. Thought he has started a new corporation Vet, Inc, there is a separate entity for Dr. Sanders from his Corporation. Withdrawal of Dr. Sanders should be considered as Drawings, not as income. The profit earned by him from the business is to be considered as his personal income. and the same ($225000) is subject to federal income tax.

Dr. Sanders can charge an amount as his salary and could be getting income tax exemptions. But it is at the option of Dr. Sanders to take salary or not.

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