hi,
My wife is a solo practitioner and is a s- corp. how do we decide on how much to take as a salary and dividends. currently she is taking only a salary, i was telling her to take 3/4 as salary and 1/4 as dividends to avoid the S security and medicare taxes on it. Am i right? if so how do we divide the respective amounts
thank you
nandeesh

Zip Code: 95355

Reasonable salary is what your wife could earn if she worked for someone else in a similar capacity. Let's say your wife's practice generate profits of $600k, and she could earn $250k working for a hospital or another group. In this case, I don't see why she couldn't substantiate taking a salary of $250k, and taking the remaining $350k as S-Corp dividends, and avoid paying social security and Medicare taxes on that income.

Perhaps your wife's state medical society, or the association for her specialty, can provide some data as to the average salary of physicians in your wife's field in your state.

I don't see how the 75%/25% method is relevant.

Zip Code: 01801

You may want to look at the Medical Group Management Association's publication Physician Compensation and Production Survey. It has compensation and production information by gender, geography, years in practice, single specialty versus multispecialty, etc. During 2005, overall median compensation, depending on the type of cardiology, ranged from $271,750 to $500,790. Your wife's compensation has to be reasonable in relation to what she does, what is reasonable in the industry, what is reasonable in the local market, etc. as Andrew mentioned.

I agree with Andrew that a 75/25% split isn't relevant.

Gary

Zip Code: 43232