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Why S Corp Owners Require a Custom Job Profile

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?

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McAlary v. IRS

“Another one bites the dust.”  Just a line that popped into my head when I read the recent Reasonable Compensation (RC) case: Sean McAlary Ltd, Inc. v. Commissioner.  McAlary Ltd. joins a long list of S Corps that have lost their RC challenges in court, about 25 in all.  The McAlary case is not that different …

McAlary v. IRS Read More »

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Short & Sweet this Month

A big thank you to all of our users!  Thanks for making RCReports the go-to solution for CPA’s and Financial Advisors when Reasonable Compensation is on the line.  We know you are in the depths of tax season so we are keeping this month’s newsletter short – see below for the sweet.

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Your Best Strategy for Surviving an IRS Reasonable Compensation Challenge

There are two ways to survive an IRS Reasonable Compensation challenge.  The first is a proactive strategy, getting all your clients ducks in a row ahead of time so you are prepared if the Reasonable Compensation figure is challenged.   The second is a desperate last-minute struggle to defend a Reasonable Compensation figure that may not …

Your Best Strategy for Surviving an IRS Reasonable Compensation Challenge Read More »

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Hey – I’m Worth More Than That!

“Hey – I’m worth more than that “is a phrase S Corp and Small Business Owners express quite frequently after researching their Reasonable Compensation figure.  Why? – Because most S Corp and Small Business Owners don’t understand what Reasonable Compensation is.  They mistakenly equate Reasonable Compensation with their dedication and commitment to their business.

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Profitability V. Distribution

One of the most frequent questions we receive is how profitability factors into a Reasonable Compensation calculation.  Unfortunately, Reasonable Compensation has very little to do with the Profit or Loss of an S Corp, and everything to do with the S Corp’s Distributions.

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How an S Corp can Lose Money and Still be Required to Pay Reasonable Compensation

This scenario is possible because Reasonable Compensation is not tied to Profit or Loss but to Distributions.   The IRS guidelines for Reasonable Compensation state: The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.  It does not mention profit or loss at all but instead talks about ‘amounts …

How an S Corp can Lose Money and Still be Required to Pay Reasonable Compensation Read More »

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