tax advantages of deferring income

[domodomo]

My wife, a physician, was told by another physician that she should take the minimum salary possible and delay taking the rest of her net income. I think they were talking about delaying multiple years. I assume she was not talking about using IRA and 401k to defer income. It is an S corp, 4 physician practice. I can't see the advantage, but maybe I am missing something? Any thoughts appreciated.

[jhwkr542]

Kind of vague. I'm assuming they mean traditional 401k or maybe CBP? If it's some other sort of deferred compensation like a 457b, then I doubt she'd want to defer with such a small business. Really need more details.

[DMFA]

Do you think they're talking about taking the corporate pass-through distribution (e.g. K-1) instead of W-2?

[Zaphod]

457?

[AdamMGrossman]

I agree that you would want to collect more info, but that seems like an odd thing to say if it's an S corp. That's because her pro rata share of the corporation's income will show up on your tax return as income regardless of whether she chooses to take money out. So that's not an effective means to reduce your tax burden.

What her colleague might mean is that your wife should take less income as a W-2 employee and take more in the form of distributions as a shareholder in the S corp.  If that's the case, I would consult your CPA and the corporation's CPA.  The IRS definitely likes to see some W-2 income for S corp shareholders, and your wife should want that too because that will build up a work history for Social Security.  Generally there is some balance that makes all parties happy and keeps you in the good graces of the IRS in case of audit.