By Paul S. Hamann
I know a small business owner (SBO) who jokes that his business card should read “President and Janitor” (and everything in between). So, should my friend be compensated as President or Janitor (or where exactly in between)? That’s the challenge you face when guiding an S-Corp client for determining Reasonable Compensation (RC). The IRS guidelines for determining RC specifically say that “In addition to the shareholder-employee direct generation of gross receipts, the shareholder-employee should also be compensated for administrative work performed…” In other words, the IRS wants SE’s to pay themselves RC for all the hats they wear for their S Corp.
But when you ask an SBO what they do, they invariably tell you all about what their business does. That’s not helpful when what you really want to know is what they do. You want to know how they spend their time when working (performing services) for their business. As you begin to explain RC to your client and the need for an accurate figure, your client’s eyes glaze over a little, and they begin listing off dozens of duties and responsibilities they provide for their business. The next question they ask you is “How do I put a number on all the different hats I wear?”
Sound familiar? It should if you advise S Corps on the issue of RC. If your practice is also a small business, then it really hits close to home.
Why is this question so difficult to answer? Because no two SBO’s do the same thing, therefore no one has assembled a complete database of easy to regurgitate salaries. Have you ever Googled S Corp salary, Small Business Owner salary, or any of another dozen variations of the same question? What you will find is a lot of articles talking about the issue; some salary sites that can tell you what your salary would be if you wore just one hat, but none offer to answer the question “What is a salary for a small business owner?” – until now.
RCReports was created by small business owners with decades of experience wearing dozens of hats. We absolutely know what it means to wear many hats and we figured out how to put a number on it! RCReports was designed for CPA’s and other professionals who advise S Corps on the issue of Reasonable Compensation. Our Patent Pending software and algorithms make it easy for you to help your clients determine their RC.
So put on your trusted advisor hat, log into your RCReports dashboard, and begin protecting and advising your clients today.
What is a Trusted Advisor?
For many CPAs, EAs and accountants, the role of Trusted Advisor is the highest honor a client can bestow on them. Usually, there is a natural progression that takes place in a client relationship that ultimately leads to the status of Trusted Advisor. In a nutshell, a Trusted Advisor is someone who has invested enough time with a client to earn absolute trust. This trust is earned by;
- Consistently demonstrating outstanding problem-solving abilities
- Industry expertise
- Excellent judgment
- Unwavering ethics
- The resilience to see difficult issues through to the end