RCR 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.

(more…)

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.

(more…)

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.

(more…)

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.

(more…)

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

As we approach 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.

(more…)

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

It doesn’t seem that long ago that the best advice for determining reasonable compensation was a rule of thumb or safe harbor figure; boy, have things changed. Beginning in 2005 the IRS launched a study of S Corp compliance. Since launching this study the IRS has:

(more…)

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

“The only reason for time is so that everything doesn’t happen at once.” Albert Einstein

Use time to your advantage! Here’s how one RCReports subscriber brought every S Corp he worked with into Reasonable Compensation compliance in three easy steps. (Full disclosure: The steps below assume you have an RCReports account.)

(more…)

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

We regularly emphasize how important it is to have your S Corp clients who perform services for their S Corp research and document their Reasonable Compensation as a strategy for warding off an IRS Reasonable Compensation challenge.

But what about protecting the shareholders who don’t perform services, especially if they’re listed as an officer of the corporation.

(more…)

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

There are more answers than you think.  Certainly, you want to research and document your S Corp client’s reasonable compensation figure or help them choose the best entity for their situation.  But even more importantly – it builds a closer relationship with your client, enhancing your ability to become a trusted advisor, the person your clients turn to first – because you know them best.

(more…)

By Richard Pasquantonio, CPA/CFF, CFE, CDFA (Guest Author)

S corporation (S Corp) taxation is a popular election for many business owners who originally decide to form an association (corporation) or limited liability company (LLC). Some major advantages of S corp status are:

• a single layer of tax applied at the individual level also referred to as pass-through taxation and
• tax-favorable characterization of income such as a portion of earnings protected from the brutal self-employment taxes.

(more…)