RCR Blog

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

As we approach planning season and you take stock of your practice, think about your clients who are a pleasure to work with, have unique needs or complex situations; you may realize you find yourself thinking about your small and medium business (SMB) clients.  A demanding bunch for the most part, as they should be.  They have engaged you to watch out for their best interests, and to point out tax and business strategies that will continue to help their business prosper; you are, after all, their trusted advisor.

One of the hard and fast rules of working with SMB’s is the need to regularly advise them on the topic of Reasonable Compensation.  The subject comes up from darn near the first conversation – when they are forming the business and choosing their entity, to the day when the business is sold or passed down to the next generation, waiting in the wings. (more…)

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.

Let’s look at an example: Meet Joan and her over-inflated alter ego Joanna.

When Joanna completes a Reasonable Compensation survey, she does so with an immensely inflated ego. She doesn’t bother to read the job descriptions and selects tasks based solely on title; there is no task Joanna –doesn’t consider herself awesome at completing; so she rates her skill level as high for each selected task on the survey. (more…)