Ensuring Reasonable Compensation for S-Corp Owners The Fight Over Reasonable Compensation Begins Before the Investigation
HOW YOU CAN ENSURE YOU’RE PREPARED FOR A REASONABLE COMPENSATION CHALLENGE
The IRS gives special attention to S corporations to ensure that owners are being paid reasonable compensation, and the tax penalties for being found in violation can be costly. Depending on how well you prepared for a reasonable compensation challenge, proving your compensation to be reasonable could be simple or a hard-fought fight to avoid some hefty fines. DETERMINING YOUR REASONABLE COMPENSATION The IRS specifies that your compensation should be “At least as much as other businesses would pay for similar services,” meaning that you should pay yourself as much as you’d expect if you took a similar position under another company. Most business owners have prior experience and knowledge of their industry, so determining your salary may be simple. For the IRS, however, the process is not so straightforward. During a reasonable compensation challenge, the IRS will independently determine what they believe your reasonable compensation to be. If there is a significant discrepancy between your conclusion and theirs, you may have to pay penalties on the taxes owed, including interest for the period they determine you were underpaying. You can fight the IRS’ determination and avoid these fines with the right preparation.
An experienced business law and tax planning professional can help avoid trouble when the IRS conducts a reasonable compensation challenge. They can work with you to determine an easily defensible salary for yourself, using information backed up by industry data relevant to how you run your business. Most importantly, the data and conclusions that lead to your determination of reasonable compensation should be recorded and kept on hand in case of a challenge. Backing up your figures with documented evidence will show the IRS how you came to a fair conclusion and save plenty of time and effort in dealing with them. We provide Reasonable Compensation Reports to our clients who want to ensure they are protected from an IRS audit, and without that, you risk hefty fines and penalties in the event of an audit. If you’re an S Corp owner needing help determining reasonable compensation or dealing with any other corporate tax issues, Dahl Law Group has the experience necessary to protect you and your business. Contact us today to see how we can help you.
Sweet Potato and Avocado Salad
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This simple vegan salad is flavorful and filling, featuring a delicious tahini- maple dressing.
Ingredients • 1 sweet potato sliced into 1/4-inch rounds • 1 tbsp avocado oil
• 1 pinch of sea salt • Water, to desired consistency
can create a precious gift for your children, grandchildren, and other loved ones that will preserve your memory for decades to come.
Salad • 5 cups of greens (spinach or lettuce) • 1 ripe avocado, cubed • 2 tbsp hemp seeds (optional)
Dressing • 1/4 cup tahini
• 2 tbsp lemon juice • 1 tbsp maple syrup
“Daring ideas are like chessmen moved forward; they may be beaten, but they may start a winning game.” –Johann Wolfgang von Goethe
Directions 1. Preheat the oven to 375 F. Line a baking sheet with parchment paper. Add sweet potato slices and toss in oil. 2. Bake for 15 minutes and flip. Bake for another 5–10 minutes and remove from the oven. 3. In a small bowl, mix tahini, lemon juice, maple syrup, and salt. Whisk to combine and slowly add water until the dressing is semi- thick and pourable. 4. In a serving bowl, add greens and top with sweet potato, avocado, and hemp seeds. Serve with dressing. Inspired by MinimalistBaker.com
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