Why S Corp Owners Require a Custom Job Profile

why-s-corp-owners-need-a-custom-job-profile-lg

A small business owner I know jokes that his business card should read “President and Janitor” (and everything in between). So, when my friend tries to determine his reasonable compensation figure (at his accountant’s request), should he be compensated as President? Janitor? Or somewhere in between? Where in between?

That’s the challenge faced by S Corp owners when trying to determine their Reasonable Compensation figure. The IRS guidelines for determining reasonable compensation specifically state that “In addition to the shareholder-employee direct generation of gross receipts, the shareholder-employee should also be compensated for administrative work performed…” In other words, the IRS wants the S Corp owners to pay themselves appropriately for all the duties and responsibilities they provide to their company.

Why is this question so difficult to answer? Because no two small business owners do the same things for their S Corps. Therefore, to get an accurate reasonable compensation figure an S Corp owner requires a unique, custom job profile. Building a custom job profile is a daunting, time-consuming process, which is probably the reason most S Corp owners don’t do it.

Would more small business owners make one if it were easy and quick?
In roughly 20 minutes RCReports can build a custom job profile for a small business owner and calculate an annual salary to match.

Or build your own:

  • Make a complete list of all the services you provide to your S Corp
  • Apportion your time among all the services listed
  • Rate your level of expertise and experience for each service performed
  • Gather wage data on all the services listed and at the appropriate level of expertise
  • Assemble all your research and data and calculate your Reasonable Compensation figure

Keep in mind that determining a Reasonable Compensation figure is far from an exact science. It is important that you research and document how you determined your Reasonable Compensation figure, and keep your explanation and all backup documents and reference sources in a place where you can find them when the IRS comes calling. If the IRS challenges your number, you will need a detailed explanation of how you came up with your Reasonable Compensation figure.

How Compensatory Intent Affects Compensation Deductions

For a corporation to deduct a payment made to a shareholder/employee as compensation, compensatory intent must exist.  Originally published in TheTaxAdviser.com on December 7, 2023. Copyright: AICPA.  It is well known…
Business Valuations February 22, 2024

Paying for Personal Guaranties of Company Debts

Originally published in The Tax Adviser, September 2022. Copyright: AICPA It is common for business owners to personally guarantee company debts. This is a valuable service since many private companies…
Business Valuations February 21, 2024

How S Corp Shareholder Health Insurance Works

Best Practices February 15, 2024

Start exploring RCReports today.

        Submit a Ticket







          Scroll to Top