Avoid a 15% Reasonable Compensation Penalty
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COVID Distribution Strategy for S Corps – Avoid a 15% Reasonable Compensation Penalty
- November 1, 2020
- Posted by: Paul Hamann
- Category: Blog
By Paul S. Hamann & Jack Salewski, CPA, CGMA
COVID has taught us a lot about protecting ourselves, and not just about wearing a mask. We’ve learned a lesson on how to use distributions to protect a company’s assets during any prolonged crisis.
Distributions are the expected reward for a well-run company. Plus, distributions protect funds from being at risk if the company gets involved in litigation. But the third reason for distributions you may have never considered is what CPA David Kolts dubs the 15% Reasonable Compensation Penalty. (Penalty here refers to consequence or disadvantage, not punishment.) (more…)
