Well-documented corporate
minutes can provide valuable supporting evidence if the IRS questions choices
you make on your tax returns. Minutes are especially important when
related-party transactions are involved, such as payments, loans, or
distributions between the company and you or other owners. For example, the IRS
may challenge the amount of your compensation. Corporate minutes that document
the factors considered by the board in approving the compensation can be a
defense against this type of challenge.
Another area to consider is the
amount of earnings your business retains instead of distributing the funds as
taxable dividends. A penalty can apply to retained earnings over a certain
limit unless the needs of your business justify the amount. Corporate minutes
can help by spelling out the reasons your company needs to retain funds – for
example, to purchase assets or for working capital.
Does your company have a
tax-qualified retirement or a stock option plan? The minutes should show
decisions by the board when adopting or modifying the plan. Other information
to include: annual decisions on the contribution percentage made to
profit-sharing plans, and the amount of fringe benefits, such as medical
reimbursement accounts.
If your corporate minutes need
updating, we suggest you contact your attorney.
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