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A Bullet Proof Vest for your Reasonable Compensation Figure

By Paul S. Hamann

Corporate law requires certain important decisions to be made by a company’s board of directors, such as setting the salary of its chief executive officer.  In many S Corp’s the board of directors is under the control of the president or even consists of one person: the president.  Under those circumstances, it is a little too easy to get sloppy in setting or changing the president’s salary based on the company’s cash flow without attention to corporate formalities.  In a worst-case scenario, the sole shareholder/sole director/president takes whatever money he or she wants out of the company, leaving it to their CPA to figure out after the fact (usually when tax returns are being prepared the following year) how much to characterize as salary and how much as distribution.

The Many Hats of a Small Business Owner

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.

Case Study: Profitability V. Distribution and Reasonable Compensation


By Paul S. Hamann

One of the most frequent questions we receive on the issue of Reasonable Compensation (RC) for shareholder-employees (SE) of S Corp’s revolves around the profitability of the S Corp.  Unfortunately, RC has very little to do with the Profit or Loss of an S Corp, and everything to do with the S Corp’s Distributions.

RCReports Shines in IRS Audit!

Welcome to our newsletter.  We promise to keep it brief and to the point.  If you want to know more, click on the link.  We will always interject a bit of humor or a little something out of the ordinary.  Thank you for your interest in RCReports – Reasonable Compensation Simplified™

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