Menu
Pro-Profit Consulting
  • Home
  • Taxes
    • Tax Preparation and Planning
    • Filing Prior Years Returns
    • Owing the IRS Money
    • Behind on Payroll Taxes
    • PPP Loan Forgiveness Assistance
  • Services
    • Accounting Services
    • Audit and Assurance
    • Bookkeeping
    • Payroll
    • Advisory Services
    • Cash Flow Forecast
    • Consulting for QuickBooks®
    • Training for QuickBooks®
    • Cloud Accounting
  • Products
    • QuickBooks Online
    • QuickBooks Online Advanced
    • QuickBooks Desktop
    • QuickBooks Enterprise Solutions
    • QuickBooks Point of Sale
    • QuickBooks Payments
    • Xero Online
  • Industries
    • eCommerce
    • Services
    • Real Estate
    • Medical and Health Care
    • Wholesalers and Distributors
    • Retail
    • Restaurant
  • Testimonials
  • Resources
    • Resources
    • Mobile Accounting
    • Blog
    • Tax Blog
  • About
  • Contact


Close Menu
July 20, 2017

What Is Reasonable Compensation?

Rene Altervain Business Tips

Tweet
Share
Share
Pin

For small businesses formed as an S Corporation and with plenty of profits, reasonable compensation is a term you may want to be familiar with.

Many small businesses have organized as an S Corporation form of entity.  In many cases, the S Corp election allows a business owner to save money on self-employment taxes, especially if they are operating as a sole proprietor. S Corp profits, or distributions, are not subject to payroll taxes.

If you are a business owner taking a salary and contributing substantially to the operations of the business, you may think that you should just take the distributions and forget the salary.  After all, think how much you would save in payroll taxes.  But this has already been tried and shot down by the IRS in the courts.  And this is where the term reasonable compensation comes in.

The IRS requires that business owners that perform a substantial contribution to the business be paid a salary according to a number of factors.  This is called reasonable compensation. You can’t pay yourself below market and take a large amount in distributions.

The IRS has issued a fact sheet that describes the guidelines that can be used to determine reasonable compensation. They include employee training, experience, duties, time spent, history of distributions, bonuses, and many other factors.

There are also reasonable compensation ramifications for C Corporations as well.

If reasonable compensation is an issue or concern for your business, please feel free to reach out and let us know how we can help.

Tweet
Share
Share
Pin
Five Ways to Streamline Your Payroll Process The Power of Influencer Marketing

Related Posts

Business Tips, Technology

Fighting Cybersecurity Threats in Your Business

Business Tips

The Concept of Independence in Accounting

Business Development, Business Tips

Should Your Business Become Cash-Free?

Monthly Archives

Categories

  • Accounting (22)
  • Accounting Software (2)
  • Blog (1)
  • Bookkeeping (1)
  • Bookkeeping Tips (5)
  • Business Development (16)
  • Business Growth (8)
  • Business Tips (58)
  • Cool Tech Tools (12)
  • Cost-Saving Tips (2)
  • Customer Service Tips (3)
  • Decision-Making Tips (2)
  • Expense Reduction Tips (3)
  • Management Tips (8)
  • Marketing Tips (1)
  • News (2)
  • Payroll Tips (3)
  • Profitability Tips (6)
  • Tax (5)
  • Tax Resolution (1)
  • Technology (2)
  • Time Management Tips (3)
Back To Top
Pro-Profit Consulting
Copyright © 2020 Pro-Profit Consulting LLC | Site Design by Accelerator Websites

Contact Us

Tax Services, Accounting Services and Services for QuickBooks®

Pro-Profit Consulting LLC

818-645-9761 | rene@proprofitconsulting.com

P.O. Box 4182
Valley Village CA 91617-4182


Intuit, QuickBooks, and QuickBooks ProAdvisor are registered trademarks of Intuit Inc. Used with permission under the QuickBooks ProAdvisor Agreement.