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Determining Reasonable Compensation using the Cost Approach

The old adage “Simple isn’t always easy” perfectly sums up the IRS and Court guidelines for determining Reasonable Compensation for an S Corp owner.  At first blush the IRS and court guidelines seem simple enough – but once you start to follow the roadmap the IRS and Courts have laid out – something that appears …

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Top 10 Reasonable Compensation points to discuss with your Clients before December 31st

With tax planning in full swing, we have compiled a Top Ten To Do List. 1. Determine an Accurate Reasonable Compensation figure for Every Client. Without an accurate reasonable compensation figure, the rest of tax planning is just a guess. Research and documentation is the best practice. If you don’t have a simple, economical and …

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Reasonable Compensation Planning Season Part I: Profitable S & C Corps

Third quarter already – are you kidding me.  This year, like most, has zipped by.  Soon the last tax deadline will have come and gone, and “Planning Season” will start.  There are two groups of small business clients you should start checking in with as early in planning season as possible to discuss Reasonable Compensation.  …

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Are you Still using a ‘Rule of Thumb’ to Calculate Reasonable Compensation?

If you answered yes, my next question is why?  I was at a neighborhood wine party last week and had a conversation with Justin (not really his name).  I met Justin last year at the same event – a nice young man and entrepreneur who was doing very well for himself.  I asked how his …

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The Unintended Consequences of Not Having Reasonable Compensation

Calculating Reasonable Compensation for an S Corp; C Corp; Small or Closely-Held business owner is not just about making the IRS happy.  There are many unintended consequences of not having reasonable compensation. They can be broken down into current; long-term; valuation; entity choice; and preparer issues. We will discuss the current and long-term issues here …

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The IRS Job Aid for Determining Reasonable Compensation

A few months ago an internal IRS Job Aid (Appendix) for determining Reasonable Compensation became public.  The Job Aid was developed by a team of IRS valuation professionals from the Large Business and International Division.  Can this job aid provide insight on determining Reasonable Compensation for Small Closely-Held businesses?  Yes, however sifting through the 54-page document and pulling …

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The Unintended Consequences of Not Having Reasonable Compensation (Part II)

Calculating Reasonable Compensation for an S Corp; C Corp; Small or Closely-Held business owner is not just about making the IRS happy.  There are many unintended consequences of not having reasonable compensation. They can be broken down into current; long-term; valuation; entity choice; and preparer issues. In Part 1 we discussed the current and long-term …

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