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In a recent memorandum to its agents and examiners, the IRS lays out steps to keep Reasonable Compensation challenges out of Tax Court. Great, you say, nobody wants to go to court! Not so fast. The option of filing a petition in Tax Court provides taxpayers with time and leverage. By following the steps in this memo, …
No Tax Court for Reasonable Compensation Re-Characterization Read More »
There are three generally accepted methods for determining Reasonable Compensation for the owner of a closely-held business. It is important to match each method with the business’s size and the business owner’s job duties. The Cost approach, aka many hats, approach: Generally works best for small businesses where the owner wears multiple hats. The Market …
Three Methods of Determining Reasonable Compensation Part III: The Income Approach Read More »
There are three generally accepted methods for determining Reasonable Compensation for the owner of a closely-held business. It is important to match each method with the business’s size and business owner’s job duties. The Cost approach, aka many hats, approach: Generally works best for small businesses where the owner wears multiple hats. The Market approach, …
Three Methods of Determining Reasonable Compensation Part II: The Market Approach Read More »
There are three generally accepted methods for determining reasonable compensation for the owner of a closely-held business. It is important to match each method with the business’s size and business owner’s job duties. The Cost approach, aka many hats, approach: Generally works best for small businesses where the owner wears multiple hats. The Market approach, aka …
Three Methods of Determining Reasonable Compensation Part I: The Cost Approach Read More »
A common question in public practice is, “how much is my business worth?” This question comes up for a variety of reasons. It could be a business merger, sale of the business, divorce, death or even idle curiosity. There are a lot of different factors that go into a business valuation. It is an oversimplification, …
The Relationship Between Reasonable Compensation and Business Valuation Read More »
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 »
I am not a big fan of checklists 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 checklist and New Year’s resolution for good I have put together a short but important to-do list for …
Since we released RCReports V1 almost five years ago I have asked users WHY? Why did you register? Why did you subscribe? Why did you renew? The answers have helped us better understand how RCReports was being used, where it was helpful, and where it needed improvement.
“If there is only one shareholder and no other employees, should all distributions be taken out as Reasonable Compensation?” This is a common question we receive at RCReports and like with most of the questions we receive, the answer is: “Maybe.” If the business is so unique or the services of the shareholder are so …
Reasonable Compensation and the Single Shareholder S Corp Read More »
Last month we walked through three basic examples of how distributions affect Reasonable Compensation. If you missed it or need a refresher click on this link. This month we will dive into two more complex examples: The first explores Reasonable Compensation and look back periods. The second explores how basis and loans affect Reasonable Compensation.
