It’s interesting that you mention that - I once knew someone who paid himself, his wife, his mother and his two little kids salaries even though none of them (except him) actually worked in the business. And then complained that the business didn’t show a profit. Of course not - the “profits” went to pay for the no show jobs. I never did figure out the reasoning behind this.
The tax avoidance reasoning is clear enough: Mom & kids have low tax brackets, hubby doesn’t.
The “logic” of siphoning off money into a different pocket then complaining you’re not profitable? That’s just stupid selfishness or selfish stupidity. I’m sure he wants cakes that can be eaten without shrinking too.
He’s doing something shady like @lslguy points out.. What I was trying to point out is that owners who put in outsized numbers of hours a week of uncompensated time are effectively skewing their numbers.
If they work 100 hours a week, don’t pay themselves a salary and “profit” to the tune of say… 75k a year, they’re not actually making money like they think they are. They’re effectively paying themselves $14/hour to do all that work, and that’s a roughly 30k normal 40 hour a week job..
One of my wife’s friends who was considered very attractive when she was younger, was the sole employee of a family foundation for six years and then her now adult daughter was added to the payroll.
Over 90% of the expenditures of the foundation was salaries and payroll taxes for these two or a scholarship of which the daughter was the only beneficiary.
The foundation was endowed by her boyfriend. It was a transparent abuse of a tax exempt entity. The purpose of the foundation was supposed to be be promoting Chinese Language education in the US, but except for a few small donations to various Chinese schools ($500-$1000 each, no more than $10k per year out of a total spend of over $100k)
The IRS finally got around to auditing them in 2021, but the only thing they were forced to do was stop the arrangement going forward.
I see that she is employed by another nonprofit that does not have publicly available financials. Seems like a religious one. Promoting Pure Land Buddhism.
Yikes.
As always, the laws is exactly as strong as there is enforcement of it. No enforcement → Wild West lawlessness regardless of the volume of statutes on the books.
See also “SEC in the post 2024-era.”