Blog
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Are You at Risk for Preparer Penalties?
- April 1, 2019
- Posted by: RCR Admin Team
- Category: Blog
By Paul S. Hamann & Jack Salewski, CPA, CGMA
Ask yourself a few simple questions:
- Have I educated all my S Corp clients about Reasonable Compensation?
- Is each client’s Reasonable Compensation figure, on its face, reasonable based on the client’s training, experience, responsibilities, and time devoted to the company?
If you answered ‘yes’ to both questions you are probably not at risk for a Preparer Penalty. There are a few more questions you should consider before you know if you are out of the woods. To help evaluate your risk and avoid preparer penalties, please use our complimentary Preparer Penalty Check List and Stress Test (COMING SOON).
If you answered ‘no,’ you may be at risk for a Preparer Penalty. We have interviewed preparers who have been assessed $5,000 penalties, and here’s what their experience can teach you:
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Surviving an IRS Reasonable Compensation Challenge
- March 1, 2019
- Posted by: RCR Admin Team
- Category: Blog
By Paul S. Hamann & Jack Salewski, CPA, CGMA
In the past, the IRS generally challenged Reasonable Compensation for being too low (for S Corps). That will not be the case in the future, with the passage of the TCJA, making it critical to properly dial in your client’s reasonable compensation figure. Surviving a challenge requires credible backup data to defend your figure.
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1099 or W-2 for Shareholder-Employees of S Corps? Updated for 199A
- February 1, 2019
- Posted by: Paul Hamann
- Category: Blog
By Paul S. Hamann & Jack Salewski, CPA, CGMA
It is a common scenario. A current client elects S Corp status but forgets to tell you, or a new S Corp client comes your way in the new year. Both have taken distributions but NO reasonable compensation.
Do you advise paying wages via W-2 or 1099-NEC?
Answer: W-2 [It’s the Law see below]
That being said there are times when it may make more sense to beg for forgiveness than to comply. (more…)
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Stress Testing a Reasonable Compensation Figure
- January 1, 2019
- Posted by: Paul Hamann
- Category: Blog
By Paul S. Hamann & Jack Salewski, CPA, CGMA
Stress testing a reasonable compensation figure is simple. The courts have listed the factors they consider when determining whether a reasonable compensation figure is indeed reasonable. We can use those factors to “stress test” any reasonable compensation figure..
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10 Reasonable Compensation Points to Discuss with Your Clients Before Years’ End
- December 1, 2018
- Posted by: RCR Admin Team
- Category: Blog
By Paul S. Hamann & Jack Salewski, CPA, CGMA
Without an accurate Reasonable Compensation figure the rest of tax planning is just a guess.
- Provide an accurate independent Reasonable Compensation Report to each shareholder-employee
- Research and documentation is now a “must-have” with the passage of the TCJA
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What Approach Should I Use to Determine Reasonable Compensation
- November 1, 2018
- Posted by: Paul Hamann
- Category: Blog
By Paul S. Hamann & Jack Salewski, CPA, CGMA
Although there are general guidelines to help you pick the best approach to determine reasonable compensation, there are no hard and fast rules. For the overwhelming majority of your clients, one of two common approaches that rely on comparability data should do the trick. For the occasional client that just doesn’t seem to fit any molds, there is an approach for them, too.
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Profit v. Distribution and its effect on Reasonable Compensation
- September 1, 2018
- Posted by: RCR Admin Team
- Category: Blog
By Paul S. Hamann & Jack Salewski, CPA, CGMA
How does profitability factor into a Reasonable Compensation calculation? This is one of the most frequent questions we receive. The short answer is: “Very little.”
That being said profit now plays a role on the shareholders 1040 with the passage of the TCJA. How section 199A and the QBI affects your clients 1040 will vary significantly, because, as has been pointed out many times since the passage of the TCJA, section 199A is incredibly complex and the IRS has just released guidance on the issue. Stayed tuned for more on the QBI in upcoming articles.
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The Ego Factor and Reasonable Compensation
- June 1, 2018
- Posted by: RCR Admin Team
- Category: Blog
By Paul S. Hamann & Jack Salewski, CPA, CGMA
There are times when every small business owner’s ego can be an asset, although when it comes to Reasonable Compensation and S Corps, having a big ego could cost your client thousands of additional dollars in payroll taxes and QBI deductions.
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Reasonable Compensation: The X Factor in the QBI
- May 1, 2018
- Posted by: RCR Admin Team
- Category: Blog
By Paul S. Hamann & Jack Salewski, CPA, CGMA
If you’ve sat down with pencil and paper or an Excel spreadsheet and attempted to map out what Section 199A deduction for Qualified Business Income (QBI) means to your pass-through business clients, then you’ve likely encountered circular logic, or with Excel – the circular reference error. And if you’ve been paying attention, even a little bit, to the conversations regarding Section 199A, then you have heard (over and over again) that this section of the Tax Cut and Jobs Act (TCJA) is arguably one of the most, if not the most challenging provision.
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Reasonable Compensation and the Modern Accounting Practice
- August 1, 2017
- Posted by: RCR Admin Team
- Category: Blog
By Paul S. Hamann & Jack Salewski, CPA, CGMA
As we approach the planning season, and you take stock of your practice, begin thinking about the clients who are fun to work with, have unique needs or complex situations, and you almost always find yourself thinking about small and medium businesses (SMB) and their owners. A demanding bunch for the most part, as they should be. They have engaged you to look out for their best interests, to point out tax and business strategies that will continue to help their business prosper; you are, after all, their trusted advisor.
