Reasonable Compensation FAQs
Can I get a Free Trial?
We don’t offer free trials; however, we do have a 30-day money back guarantee*. If for any reason the software is not performing to your expectations – contact us. If we can’t solve the concern, we will refund your money.
If you would like to get to know the software better before subscribing, please schedule a demo HERE.
*No refunds are offered for the Starter plan.
Can I run reports for previous years?
Yes, our wage database includes wages from 2001 to present.
How Large a Company can RCReports handle?
Our data sets are reliable up to 25m in Adjusted Gross Profit and/or 250 FTE. Above those thresholds our data is not reliable.
Adjusted gross profit is gross revenue less the direct cost of producing this income. The direct cost of producing income is all expenses that have a one to one relationship to producing income. This concept is like but not identical to gross profit. [Learn More]
How do I remove the DRAFT stamp?
To remove the Draft stamp, you will need to manually lock the report. You can do this from the options drop down beside the report you want to lock – choose Lock Report
Keep in mind you will no longer be able to edit the report.
The report will lock automatically after 30 days, unless you lock it manually before that.
For more on the subject click HERE
What is included in the Reasonable Compensation Figure?
Reasonable Compensation figures include taxable Medicare wages and flexible spending accounts. Reasonable Compensation figures do not include non-taxable fringe benefits such as health insurance, vehicle or vehicle allowance, stock options, company loans and other items not reported on a W-2 as Medicare wages.
Example 1: (S Corp)
- Cash available for reasonable compensation, health insurance payments and distribution $130,000
- Reasonable compensation based on RCReports $80,000
- Health insurance $15,000
- In this example
- Line 1 and 16 of the W-2 would reflect $95,000
- Line 3 and 5 of the W-2 would reflect $80,000
- The taxpayer would have distributions of $35,000
Example 2: (S Corp)
- Cash available for reasonable compensation, health insurance and distributions $85,000
- Reasonable compensation based on RCReports $80,000
- Health insurance $15,000
- In this example
- Line 1 and 16 of the W-2 $85,000
- Line 3 and 5 of the W-2 $70,000
- The taxpayer would have distributions of $-0-
What If an S Corp Owner Can’t Afford to Pay Reasonable Compensation?
This is by far the number one question we receive, and the answer is both simple and complex. Why? Because the amount of Reasonable Compensation actually paid is tied to distributions, not profit or loss. [Read More]
Why are hours limited to 40 for compliance reports?
RCReports bases its methodology off IRS guidelines and court cases. In a recent court case McAlary v. the IRS, both the IRS expert and the courts use the industry standard of 40 hours per week even though Mr. McAlary worked well over 40 hours per week (he was in the 60 to 80 hours per week range). You can find this court case and other helpful information in the resource library located in the tools tab.
Therefore, we limit hours to 40 for our S & C Corp Compliance Reports. If you want to exceed 40/week you can accomplish this by running a Planning report for the client. Although we don’t recommend exceeding 40/week we do not limit hours to 40 in the Planning (or Normalization) reports.
What should I consider when selecting proficiency?
Picture yourself in a room of 100 peers who perform the same task. How would you rate yourself among the 100 people in the room? Bottom 10% rate proficiency low, top 10% high and so on.
Rating proficiency is a judgment call, but it is based on some perception of how well one performs a particular task.
Where do you get your data?
Exactly how our wage estimates are derived is a trade secret. What we can share with you is that all data meets strict confidence levels. Some of our sources of raw data include the U.S. Bureau of Labor Statistics, the U.S. Census Bureau, and state departments of labor. In addition, we provide a comprehensive Methodology report to any of our users presenting one of our reports in an examination or litigation.