In 2020, the IRS will be looking more closely at S-Corporation’s owner compensation to determine whether the S-Corp owner is being paid a “reasonable” compensation. The IRS is looking not only whether the S-Corp is being paid reasonable compensation for the work that they do for the business but also that they are being paid before receiving distributions from the S-Corporation.
Having credible back up documentation to support Reasonable Compensation is the new standard, don’t get caught off guard when your next S Corp examination hits.
We can help you navigate this important area to help ensure that you are in compliance with IRS regulations.
We will follow these steps in helping determine reasonable compensation:
1) Determine the best approach (Income, Cost or Market).
2) Gather information about the business and the owner(s) work in the business
3) Gather comparable data
4) Analyze the information and calculate reasonable compensation.
5) Document the findings in case of IRS audit.
Don’t be caught without proper documentation and not paying reasonable compensation.