(513) 933-0225
services@myteamaccounting.com

LET'S MEET
  • Home
  • Services
    • Accounting & Bookkeeping
    • Cash Flow Forecasting
    • Advisory/Outsourced CFO
    • Consulting for QuickBooks®
    • Training for QuickBooks®
    • Payroll
  • Accounting Products
    • QuickBooks® Online
    • QuickBooks® Online Advanced
    • QuickBooks® Desktop
    • QuickBooks® Payments
    • QuickBooks® Point of Sale
    • QuickBooks® Enterprise Solutions
  • Industries
    • Services
    • Real Estate
    • Medical and Health Care
    • Construction
    • Retail
    • eCommerce
  • Resources
    • Resources
    • Partners
    • Mobile Accounting
  • Blog
  • Testimonials
  • About
    • Our Team
    • Our Values
    • Why Us?
    • Send Us Your Referrals
    • FAQ
  • Contact
  • Home
  • Services
    • Accounting & Bookkeeping
    • Cash Flow Forecasting
    • Advisory/Outsourced CFO
    • Consulting for QuickBooks®
    • Training for QuickBooks®
    • Payroll
  • Accounting Products
    • QuickBooks® Online
    • QuickBooks® Online Advanced
    • QuickBooks® Desktop
    • QuickBooks® Payments
    • QuickBooks® Point of Sale
    • QuickBooks® Enterprise Solutions
  • Industries
    • Services
    • Real Estate
    • Medical and Health Care
    • Construction
    • Retail
    • eCommerce
  • Resources
    • Resources
    • Partners
    • Mobile Accounting
  • Blog
  • Testimonials
  • About
    • Our Team
    • Our Values
    • Why Us?
    • Send Us Your Referrals
    • FAQ
  • Contact
July 20, 2017

What Is Reasonable Compensation?

Ellen Allen Business Tips

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.

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

Related Posts

Blog, Business Growth, Business Tips, Productivity Tips

Ten Places to Look to Find More Profits

Blog, Business Growth, Business Tips, Money Management

Should Your Business Become Cash-Free?

Bookkeeping Tips, Business Growth, Business Tips

The 13-Week Cash Flow Forecast

Recent Posts

  • The Concept of Independence in Accounting
    February 11, 2021
  • Ten Places to Look to Find More Profits
    January 27, 2021
  • Should Your Business Become Cash-Free?
    January 14, 2021
  • Home
  • Services
  • Accounting Products
  • Industries
  • Resources
  • Blog
  • Testimonials
  • About
  • Contact

Sitemap

  • Home
  • Services
  • Accounting Products
  • Industries
  • Resources
  • Blog
  • Testimonials
  • About
  • Contact

Citrix ShareFile

Affiliations

Lebanon Area Chamber of Commerce

The Ohio Society of CPAs Lebanon OH Mason OH

Contact Us

My Team Accounting

(513) 933-0225
services@myteamaccounting.com

726 E. Main St. Suite F-217
Lebanon, OH 45036-1900

Serving clients in Lebanon, OH, Mason, OH and throughout the United States.

Copyright My Team Accounting 2020 | Site Design by Accelerator Websites
Intuit, QuickBooks®, and QuickBooks® ProAdvisor are registered trademarks of Intuit Inc. Used with permission under the QuickBooks® ProAdvisor Agreement.