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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29921
Experience:  Taxes, Immigration, Labor Relations
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I work company years. It is an S corporation.

Customer Question

I work for a company for 25 years. It is an S corporation. The owner wants to give me 25% of the shares of the company but he says that the shares would be transferred as income and I would be taxed on that personally. Is he full of crap?
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.
Hi and welcome to our site!Yes - that is correct.Because you will receive assets in connection with your employment - the fair market of shares will be treated as wages - and MUST be taxable as wages.So - the owner is correct.The IRS would require the owner to report that transfer as wages.Your taxable income woudl be determined based on the fair market value of shares you will receive.
Customer: replied 2 years ago.
The company is 4 million in sales so 25% would be 1 million dollars. I make $149,000.00/year income so 2015 I would have to declare 1,149,000.00 as my income for that year? And pay taxes on that amount?
Expert:  Lev replied 2 years ago.
Yes - that is correct - in general that amount woudl be classified as wages - subject of income tax and employment tax.
On the other hand - that value will be your basis in these shares - so whether you will sell shares in future - your taxable capital gain will be an appreciation above that value.
But so far - these shares would be a compensation for services you provided as an employee - so that is your taxable income - and your employer will report that amount on W2.
There is not much we may do.