Problem:
Mr. Whit is the sole shareholder and CEO of newly incorporated Talawanda Concepts. He plans to pay himself a reasonable $100,000 annual salary. However, the corporation will pay his first-year salary on a monthly basis and the entire second year salary on December 31. The corporation will pay nothing to him during the second calendar year, and then it will repeat the payment cycle in the third calendar year. Talawanda will fund each year-end salary prepayment through short-term loans from a local bank. The purpose of this odd payment schedule is to avoid Social Security tax on Mr. Whit's base salary in alternating years. Will this strategy to minimize his payroll tax actually work?