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Reasonable Compensation Past, Present & Future

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

Reasonable Compensation Year End Check List

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

I am not a big fan of checklists or New Year’s resolutions, but – there’s always a but –that being said, they are helpful in an annoying sort of way. So, in an attempt to use a checklist and New Year’s resolution for good I have put together a short but important to-do list for you and your clients, so you can move Reasonable Compensation from the Procrastination column to the Done column.

A Sincere Thank You to all who answered my “Quick Question”!

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

Since we released RCReports V1 almost five years ago I have asked users WHY? Why did you register? Why did you subscribe? Why did you renew?

The answers have helped us better understand how RCReports was being used, where it was helpful, and where it needed improvement.

Reasonable Compensation and the Single Shareholder S Corp

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.”

If the business is so unique or the services of the shareholder are so unique, that no one could be hired to replace the owner and there are no other assets in the corporation, then everything taken out of the business should be treated as wages (Reasonable Compensation) and nothing should be considered a distribution.

Using Corporate Minutes to Protect Against a Reasonable Compensation Challenge

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.

Three steps to Reasonable Compensation compliance for all of your S Corps

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.)

Reasonable Compensation and Multiple S Corps

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

There are numerous issues when a business owner is a shareholder in more than one S Corp. Does the shareholder have to complete a reasonable compensation assessment (RCA) for each corporation, or will one assessment do? Does each corporation need to pay wages? What happens if the owner is above the Social Security maximum?

Profit v. Distribution and its effect on Reasonable Compensation Part II

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

Last month we walked through three basic examples of how distributions affect Reasonable Compensation.  If you missed it or need a refresher click on this link.  This month we will dive into two more complex examples: The first explores Reasonable Compensation and look back periods. The second explores how basis and loans affect Reasonable Compensation.

Why Add Reasonable Compensation to your Practice?

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.

Profit v. Distribution and its effect on Reasonable Compensation Part I

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

How does profitability factor into a Reasonable Compensation calculation?  That is one of the most frequent questions we receive.  The short answer is: “Very little.”  To help you understand why, we’ll describe a few scenarios below and next month.  First, a few guidelines:

By Richard Pasquantonio, CPA/CFF, CFE, CDFA

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.

 

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