Distributions
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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…)
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Should you adjust Reasonable Compensation in the age of COVID?
- October 1, 2020
- Posted by: Paul Hamann
- Category: Blog
By Paul S. Hamann & Jack Salewski, CPA, CGMA
COVID is affecting everything in 2020, and that includes Reasonable Compensation. Business owners may be putting in more hours, or less, taking on new online tasks, or giving themselves a pay cut along with their employees. As businesses adapt to the pandemic, Reasonable Compensation calculations must be adjusted as well. “Set it and forget it” doesn’t work anymore in 2020.
What adjustments are warranted? There are three primary adjustments you should consider discussing with your S Corp. owners before the end of the year and a few others you should be aware of. (more…)
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Anatomy of an IRS Reasonable Compensation Challenge
- June 1, 2020
- Posted by: Paul Hamann
- Category: Blog
By Jack Salewski, CPA, CGMA & Michael E. Breslin CPA, MST, JD
What does an IRS reasonable compensation challenge look like from A-Z? Following is an analysis of a recent reasonable compensation challenge for a real estate agent in the Northeast handled by tax attorney Mike Breslin:
An S Corp owner has a fantastic year. More zeros than he’s ever seen. Then comes “The Letter” from the IRS.
That’s what happened to tax attorney Mike Breslin’s client. A real estate agent had a banner year, primarily because of one huge sale, more than doubling his usual income. But, like every other year in his career, he claimed no reasonable compensation on his S Corp tax return. (more…)
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Reasonable Compensation & the Single Shareholder S Corp
- April 1, 2020
- Posted by: Paul Hamann
- Category: Blog
By Jack Salewski, CPA, CGMA & Paul S. Hamann
“If there is only one shareholder and no other employees, should all distributions be taken out as Reasonable Compensation?”
This is a common question we receive at RCReports and like with most of the questions we receive, the answer is: “Maybe.” (more…)
