By Paul S. Hamann
What am I worth is an interesting question because it largely depends on who’s asking and why? An insurance advisor is considering your future. A headhunter is examining your track record and potential. A mineralogist would be assessing the value of your trace elements (about $160 for the average person). But what we are concerned with is if the IRS asks…
If the IRS asks what you are worth as an S Corp owner, you need to play by the IRS’s rules. Those rules are helpful but not definitive. First, take a look at the IRS guidelines. Next, combine that with the most recent court cases. Last, do your research. As with any other wage determination, you should consider all the available information, and make a rational reasonable determination.
Simple but not easy? Yep – but why? There are three reasons and they build on one another:
- Time: It takes a significant amount of time to research and understand the IRS’s guidelines and recent court rulings.
- Time and Patience: It takes a substantial amount of time and patience to research what your wages might be on the open market.
- Time, Patience and Skill: It takes patience, time and skill to consider and summarize all of the research and data into a defensible report.
Not hard to see why so few S Corp owners give up and just guess. The problem guessing is that without a backup for your Reasonable Compensation figure, you have no defense when challenged.
The best advice I can give any S Corp owner and their advisors is this: Don’t procrastinate and pray. If you don’t want to take the time and effort to determine your Reasonable Compensation, let us do it. We live and breathe all things Reasonable Compensation. In about 20 minutes we walk any S Corp owner through an online interview and produce a professional, defensible Reasonable Compensation Report.