Corporation's paying dividents to avoid FICA

Hello all,

I wonder if it is possible for a corporation to pay all its profit in form of dividends to shareholders (i.e. the only shareholder is the owner) in order to avoid paying FICA. At the year end shareholders would get 1099-DIV and pay regular income taxes from amount shown.
Please someone advice why this would be impossible. It sounds too good to be true. I spoke to 2 accountants (one is CPA) and they both agreed that it is probably not possible but could not point me out to a particular law applicable.
If it makes any difference the state is New York

TIA

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Daniel Shlyam

this is not a "tax bailout" method available under C-Corp status. if a sole owner (shareholder) distributes in the form of dividends, remember this: dividends are not deductions. dividends are "distributions". example: generally, if i have $50,000 in income and then, distribute $50,000 in dividends, you have whats call a "tax blunder". remember: a corporation is a taxpayer, and you, the dividend recipient are ALSO a taxpayer. if you have not already heard this, remember "double taxation": the corp will pay tax on the $50,000 income; and yes, you will receive a 1099-DIV and will then pay tax on your $50,000 in dividends. both you and your corp will pay tax at your respective tax rates. now having said all of this, the S-Corp election will allow you to accomplish your goals, using this strategy, but the IRS is hip to this with S-Corps, so it is somewhat limited but can still be accomplished. in hindsight, an LLC woulsd be superior to C & S Corps. With a C-corp, a very good method is to rent assets to the c-corp. therefore, as rent income is not subject to payroll tax, you will effectively bailout money in the form of rental payments from the c-corp. there are several other strategies but my fingers are tired. altogether combined, you can bailout out much of the income using alternate entities that "provide services" to the corp. by the way, your accountant & cpa should have known this.

The corporation may take a deduction for dividends paid in computing the accumulated earnings and personal holding company penalty taxes, but not regular taxes. Therefore, in the situation you mention, the corporation would have to pay tax on all its income earned with no deduction for dividends paid. Then the shareholder would have to pay tax on the dividends. Rather then save tax dollars, doing it this way would mean a double tax is paid on all income.

What some people do in this situation is for the owner of the corporation to take enough of a salary so that there are no profits. However, this is only allowed if the salary is reasonable for the value of the work done.

Also, consider what J Ducaine said. I agree with that.