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A tradition missed dearly by accountants and tax professionals has been resurrected on this beautiful weekend before the tax deadline. On Friday, the President and the First Lady released their jointly filed tax return. Included are some interesting points of note, which we’ll highlight in a bit. But even more fascinating to me is that the President of the United States was able to do what 18% of our client base wasn’t, get their tax information submitted before the tax deadline.

No shade, we’ll be here when you’re ready, but think about how much that guy has going on, especially this year. Sure, he gets a bit of a pass because he didn’t have a 3rd stimulus letter to track down and no advanced child tax credit letters to get his hands on. Both Joe and Jill own separate S-Corporations, so those tax returns have to be completed first, before March 15th, if they want to get it in before the deadline, and then they can move on to gathering the information to prepare their personal tax return. And they were able to get it all together before the deadline, on 4/13, so a few days to spare.

One thing I didn’t see included anywhere on this tax return were W-2 wages paid to the owner of each S-Corporation. As an S-Corporation, you can avoid paying self-employment taxes on your earnings. In return for that 15.3% tax savings (remember self-employment taxes represent BOTH sides of Social Security and Medicare taxes), you MUST pay yourself a reasonable salary or compensation as W-2 wages.

Why you ask?

That forces you to pay into the Social Security and Medicare programs. You’ll pay ½ as the employee, taken right out of your paycheck before seeing the money. And you’ll pay ½ as the employer, which will is a deductible expense for the business.

It’s like a “you scratch my back, I’ll scratch yours” type of deal.


The IRS lets you slide on some taxes, but you have to pay yourself SOMETHING. You can’t just set up an S-Corporation and then not pay yourself a reasonable salary, therefore avoiding all payments into the Social Security and Medicare programs. Remember, the payments into those programs are not only helping fund those payments that are being made NOW, but your Social Security earnings also set the bar for how much Social Security benefits you’ll get when you retire. So if you pay into Social Security, you’re setting your future self up for a cushier lifestyle. And it’s hard to plan now for what our Soylent diets might cost us 30 years from now, so assume you’re going to need as much money as possible. *Side note you can sign up for an account with Social Security online and get estimates for how much you’ll get paid out at retirement based on what you’ve paid into the system.

So why didn’t Joe Biden pay himself wages from his S-Corporation, CelticCapri Corp? And why didn’t Jill Biden pay herself anything from Giacoppa Corp?

First off, let’s look at page 1 of the tax return. Line 1 and Line 8 are going to be our focus.

Line 1 shows all W-2 wages earned by the people on the tax return. In this case, Joe and Jill file jointly, so together, they earned $445,449. If we want to see the details behind those earnings, we can look at Statement 1 on page 22 of the PDF.

We see that the Spouse (Jill) earned $67,116 from Northern Virginia Community College. And the taxpayer (Joe) earned $378,333. As the President of the United States, he makes $400,000 per year, but since he started in late January 2021, he didn’t work the full 12 months to earn his $400k. This gives us something to look forward to for 2022. Notice the employer is “DFAS-CIVPAY.” The President is paid by the Defense Finance and Accounting Service as a Civilian Employee. There is no White House Corp. Who knew!

At first glance, this is no big deal. They both earn nice W-2 wages. Her as a professor, him as the President; everything checks out. But as I headed down the 1040 and saw that Line 8 had an Other Income item of $61,995, I got curious. If those earnings were from a partnership, that would explain why no wages were taken, but if those earnings were from an S-Corporation…


So let’s head to page 9 of the PDF to page 2 of Schedule E (don’t ask where page 1 is, it’s not here by design). That shows us where $61,995 is coming from. $32,761 of income by Giacoppa Corp and $29,234 from CelticCapri Corp. According to the White House, these Corporations were created for speaking and writing engagements and royalties from previous publications.

Looking back at their 2020 tax return, Giacoppa Corp was around. Jill’s S-Corporation paid her $200,000 in W-2 wages and earned her S-Corp income (after those W-2 wages) of $90,854. So clearly, her advisors know that they should be taking a reasonable salary, but they didn’t in 2021.

Wait a minute. Why isn’t CelticCapri Corp reported on their 2020 tax return? It’s reported in 2019, odd. In fact, in 2019, Joe took $112,500 of W-2 wages from that Corporation, so he knows about the reasonable compensation rules as well.

While the missing Corporation income from CelticCapri in 2020 is peculiar, we might dig into it a bit further because skipping a year reporting S-Corporation income is NEVER advised, and why would his book royalties dry up one year and then start back up the next year. This wasn’t the initial focus of this article, so we’ll stay on track.

My initial instinct for why there were no W-2 wages paid to Joe or Jill from their Corporations was that the income was so low that it didn’t justify paying the officer any wages. Their Corporation income totaled $62,000, combined, which is low. But that doesn’t necessarily mean they shouldn’t have paid themselves some compensation during the year.

What is reasonable compensation?

It is hard to advise clients about reasonable compensation because it should be based on their participation in the company, industry, location, plans, education, etc. The IRS has no specific guidance on how to determine when compensation is reasonable. But we know from IRS documents and court cases that the IRS agent will look at officer’s experience, duties, knowledge, and responsibilities within the company to determine the reasonableness of the compensation in question.

Since all we have to go on are court cases that the IRS has ruled on and industry experience, among other CPAs, we usually suggest starting with replacement cost. For example, if you were to hire someone to do the job you do daily, what would you pay them? Remember, they’d have the exact same level of education, duties, and responsibilities that you have.

If he was ever audited, Biden’s advisors would likely take the stance that the income from the S-Corporation was too low to warrant compensation and that neither of them had involvement in the business during the year because they couldn’t earn income from speaking engagements. Therefore, there wouldn’t be any wages due to them as employees because they didn’t work for the business during the year. The income that was earned was all passive income from book royalties.

If those two reasons weren’t good enough for the IRS, the additional tax assessed would be minimal anyway. Joe earns more than the Social Security Limit ($142,800 in 2021) from his day job, so he’s already paid in enough to Social Security for 2021. If self-employment taxes were assessed on those S-Corporation earnings, they’d be Medicare only and minimal.

Jill didn’t earn up the Social Security max with her teaching income, so she’d have to pay the full amount of self-employment taxes on her S-Corporation earnings if the IRS decided they didn’t qualify for S-Corp treatment.

Just because the President does something on his taxes doesn’t mean you should. Everyone’s situation and circumstances are different. And because the IRS hasn’t released any clear guidance as to what amount of S-Corporation income is acceptable not to be required to pay W-2 wages or what types of income warrant no W-2 wages being taken, you must base your reasonable compensation decision on a variety of factors, and most importantly, document your reasoning. If you pay yourself exactly one half of your net income every month, or take owner distributions and take quarterly payroll, or if you track your hours and pay yourself an hourly rate based on the going rate for service in your area, have reasoning and a methodology behind your decisions. The IRS will want explanations and documentation for every decision you make, especially this arbitrary compensation amount. It’s the first thing you’re going to get in the mail is a request for additional information to allow you to explain what business purpose each expense has and how you determined that the amount was reasonable.

Let’s look at some of the other interesting pieces of information we can gather from the President’s 2021 tax return.

  • They earned $3,228 of interest income from fourteen different sources.
  • They earned $57,452 of pension income
  • They earned $54,665 of social security benefits
  • They paid $14,896 of interest on their mortgage in 2021
  • They contributed $17,394 to various charitable organizations, including $5,000 to Beau Biden Foundation.
  • Mortgage interest and charitable contributions are itemized deductions along with state taxes, so the Biden’s didn’t pay tax on the first $42,290 of their income.
  • Their total tax on their $568,412 of income was $150,439.
  • $85,000 was paid from their W-2s, $14,500 from 1099s and other forms, $49,000 were their total quarterly tax estimates, and they owed $1,752 at tax-filing time.

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