Reasonable Compensation Year End Check List

By Paul S. Hamann & Jack Salewski, CPA, CGMA

I am not a big fan of check lists or New Year’s resolutions, but – there’s always a but –that being said, they are helpful in an annoying sort of way.  So, in an attempt to use a check list and New Year’s resolution for good I have put together a short but important to-do list for you and your clients, so you can  move Reasonable Compensation from the Procrastination column to the Done column.

  1. Send your clients an issue letter explaining Reasonable Compensation. We have a great letter you can use to get started, just download it from*
  2. Follow up on the letter, rinse and repeat as necessary. A large percentage of your clients will simply do nothing after receiving your issue letter – right?  This is a perfect opportunity to check in with your clients, “Hi Todd, Let’s get your Reasonable Compensation documented; its cheap insurance and the IRS is cracking down in this area” (you get the idea…)
  3. If your client has no idea how to value the services they provide to their S Corp, use RCReports to assist them.
  4. Put the Reasonable Compensation figure in context of your client’s business. Don’t know what I’m talking about? – take our class on Reasonable Compensation.  If we don’t have any live events scheduled, take it on demand here.
  5. Reward yourself – Buy yourself that “thingy” you really wanted and didn’t receive this holiday season, (you did remember to invoice for your services) and check Reasonable Compensation off your to-do list!

Ahh – few things are as satisfying as crossing items off your to-do list AND keeping a New Year’s resolution at the same time.  Here’s wishing you and your clients a prosperous 2015, and should a Reasonable Compensation challenge your way come – RCReports will have your back.  Now get back to work, April 15th will be here before we know it…

*You will need to login to your RCReports account to download the issue letter, you will find it under ‘Tools’ in the Help tab.  Don’t have an RCReports account?  Set one up – no cost or obligation to do so. (Get Started)

Q&A with Jack

“If an S Corps only employee is the shareholder, can the S Corp pay the shareholder as a contractor and report it on a 1099 to avoid the hassle of payroll tax reporting?”

Generally the answer to this question is no. There is no exception to paying Reasonable Compensation as wages based on number of shareholders or employees. However there is an exception if the corporation is in an industry that normally pays compensations as non-employee compensation. This most common example of this would be real estate agents. In either case, the compensation paid to the shareholder should be reflected on line 7: Compensation of officers

~ Jack Salewski is VP of Education for RCReports and an expert on how Reasonable Compensation applies to tax and business situations.

Diamond Polisher

These skilled professionals take one of the hardest substances on earth and create unique masterpieces, making weddings, anniversaries and other special occasions unforgettable.

This month we take a look at what Diamond Polishers make around the country:

  • Lee County, AR ~ Average pay – $20.81/hour
  • Boulder, CO ~ Average pay – $19.09/hour
  • Emmet County, IA ~ Average pay – $17.66/hour
  • Honolulu, HI ~ Average pay – $14.61/hour
  • Las Vegas, NV ~ Average pay – $17.82/hour

~Each month we highlight an occupation from the more than 6,000 occupations included within the RCReports proprietary database of wages~