Sample Reasonable Compensation Reports

RCReports blends IRS criteria, court cases, and our proprietary database of wages to provide accurate and defensible reasonable compensation reports.

The Cost Approach (aka Many Hats Approach) is generally best for small businesses where the business owner provides multiple services for the business.

The Market Approach (aka Industry Comparison Approach) generally works best for medium and large businesses where the owner provides only one duty: managing the business.

The Income Approach (aka Independent Investors Test) generally used in litigation to support or discredit a primary approach such as the Cost or Market.

Cost Approach

The Cost Approach (aka Many Hats Approach) is generally best for small businesses where the business owner provides multiple services for the business.

Best viewed on desktop

Market Approach

The Market Approach (aka Industry Comparison Approach) generally works best for medium and large businesses where the owner provides only one duty: managing the business.

Best viewed on desktop

Income Approach

The Income Approach (aka Independent Investors Test) generally used in litigation to support or discredit a primary approach such as the Cost or Market.

Best viewed on desktop

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$68,788

Cook County, IL

Reasonable Compensation Figure

Details the salary range for the owner’s industry and location and provides a suggested reasonable compensation figure.

Your Time

Breakdown of how the owner spends their time in the business. This information is based on the interview completed.

Your Compensation

How the compensation number is affected by each task the owner performs.

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Compensation Details

Detailed breakdown of the compensation tied to each task that the owner performs.

Accounting – Finance- Bookkeeping

My Business

Task Category

Categories of tasks completed by the owner.

TaskPurchasing Clerk

ProficiencyAverage

Standard Tasks & Proficiency

Tasks commonly associated with running a small business and the Owner’s proficiency level for this specific task.

My Business Tasks

Specialized tasks the owner performs for their business that fall outside of standard business tasks.

Overall15%

Hours312

Wage$45.21
$28.48%

Annual$28,211
$17,772

Percentage of Time & Annual Hours

Annual percentage of owner’s time spent on that task and hours per year the owner spends on this task.

Percentage of Time & Annual Hours

Annual percentage of owner’s time spent on that task and hours per year the owner spends on this task.

Hourly Wage & Annual Compensation

Hourly wage for this task based on location and proficiency and hourly wage x annual hours worked for that task.

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Business Summary

Details of the report including owner’s name, business name, calendar year, location, total annual hours worked, and date the interview was completed.

Calculated for

Scott Stone

Company

Stone Concrete, Inc.

Interview completed

2022-04-11 22:49:14

Report calendar year

2022

Location

Cook County, IL

Hours Worked

2080

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Supporting Documentation

Details on how the reasonable compensation figure was calculated using RCReports.

How was my ‘Annual Salary’ or ‘Reasonable Compensation’ calculated?

Methodology

This report uses the Cost Approach to determine a Reasonable Compensation figure.
The Cost Approach takes into consideration all the tasks a business owner provides…

Methodology Description

Details on the specific approach selected for the reasonable compensation report.

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Additional Details

Additional tools and resources to help you as the practitioner finalize the reasonable comp figure, and to help the business owner further understand the figure.

Other considerations before deciding on a final Reasonable Compensation figure:

Additional information and help on the issue of Reasonable Compensation for
S Corporation owners can be found at:

Additional resources:

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Task Descriptions

Detailed descriptions for each task selected during the client interview.

Descriptions of Tasks Selected

Sales Representatives
Bookkeeper
Purchasing Clerk
Business Office Manager
Concrete Finisher
Maintenance Mechanic

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Sample Language for Corporate Minutes

Add an additional layer of defensibility by adding the report to the company’s corporate minutes.

Sample Language for your Corporate Minutes

Get your sample copy of the Cost Approach report

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$275,211

Reasonable Compensation Figure

Quickly view the calculated reasonable compensation figure with supporting details.

Reasonable Compensation Calculation

Details the salary range for the owner’s industry and location and provides a suggested reasonable compensation figure.

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Business Summary

Details the inputs provided to reach the suggested Reasonable Compensation figure.

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How was my ‘Annual Salary’ or ‘Reasonable Compensation’ calculated?

Supporting Documentation

Details on how the reasonable compensation figure was calculated using RCReports.

Methodology
This report uses the Market Approach to determine a Reasonable Compensation figure.
The Market Approach compares the business owner’s compensation to compensation…

Methodology Description

Details on the specific approach selected for the reasonable compensation report.

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Other considerations before deciding on a final Reasonable Compensation figure:

Additional resources:

Additional Resources

Additional tools and resources to help you as the practitioner finalize the reasonable comp figure, and to help the business owner further understand the figure.

Get your sample copy of the Market Approach report

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$550,000

Reasonable Compensation Figure

Quickly view the calculated reasonable compensation figure with supporting details.

Reasonable Compensation Calculation

Based on what a hypothetical investor would be satisfied with when looking at the financial performance of the business in conjunction with the compensation level of the owner.

In this approach, if investors obtain returns above what they should reasonably expect, an employee’s salary is presumptively reasonable. This approach can only be used when you have Fair Market Value (FMV) for each year compensation is being evaluated.

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Business Summary

Details of the report including owner’s name, business name, calendar year, location, and Fair Market Value calculations.

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How was my ‘Annual Salary’ or ‘Reasonable Compensation’ calculated?

Supporting Documentation

Details on how the reasonable compensation figure was calculated using RCReports.

Methodology
This report uses the Market Approach to determine a Reasonable Compensation figure.
The Market Approach compares the business owner’s compensation to compensation…

Methodology Description

Details on the specific approach selected for the reasonable compensation report.

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Other considerations before deciding on a final Reasonable Compensation figure:

Additional resources:

Additional information and help on the issue of Reasonable Compensation for
C Corporation owners can be found at:

Additional Resources

Additional tools and resources to help you as the practitioner finalize the reasonable comp figure, and to help the business owner further understand the figure.

Report3-page5

Sample Language for your Corporate Minutes

Sample Language for Corporate Minutes

Add an additional layer of defensibility by adding the report to the company’s corporate minutes.

Get your sample copy of the Income Approach report

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