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4 (free) Tools that make Reasonable Compensation Compliance a breeze

By Paul S. Hamann & Jack Salewski, CPA, CGMA

Watching the leaves in free fall inspired us at RCReports to put together four free resources for you. All of these tools (and more) are free for RCReports account holders. If Reasonable Compensation has been a tough subject to bring up with your clients, offering these free tools may help you rake in the data you need to get them IRS compliant.

  1. Reasonable Compensation Issue Letter for Clients (3 Part) – This customizable letter series explains the issues of Reasonable Compensation in layman’s terms, and encourages your clients to comply over a three year grace period. Read More
  2. Preparer Penalty Check List & Stress Test – One of the best ways to protect yourself from preparer penalties is to use a checklist and stress test your clients' Reasonable Compensation against IRS and Court guidelines.
  3. RCReports Interview Questionnaire – A simple form-based Reasonable Compensation interview that can be printed or emailed to clients. It will help your clients document all the services they provide to their S Corp
  4. Entity Planner – This tool compares S Corps to pass-through entities (Schedule C, LLC, and Partnerships) where all net profit is subject to Social Security and Medicare taxes. A fantastic way to show a client how switching to an S Corp could save them money, and you pick up a new corporate client.

Thought Leaders and Educators (see below) from coast-to-coast now recommend that tax preparers back up an S Corp owner’s Reasonable Compensation with research and documentation, and use RCReports as an independent source to do so.

A successful Reasonable Compensation challenge by the IRS or state agency for unreasonably low compensation can easily cost your clients thousands of dollars in tax penalty and interest and can cost you, their tax preparer, $5,000 or more in preparer penalties. Schedule the conversation before the last leaf hits the ground.

P.S. Creating an account with RCReports comes without cost or commitment. When you are ready to run a report simply choose the plan that’s right for you and your practice.

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