Reasonable Compensation for "S" Corporation Shareholders

IRS Hot Button!!

  • Billions of dollars in lost Social Security taxes

  • Issue: In many cases, the Shareholder Compensation is not reasonable and customary for the job performed resulting in lower total social security taxes collected leading to:

  • Resulting in readjusting compensation for years audited and increasing SS tax amounts plus penalties and interest, affecting the individual’s tax return.

Compensation Must be Reasonable and Customary

  • Includes base salary and bonus

  • What is the job of the officer?

  • How are like positions compensated in the same market area?

  • What percentage of an average workweek does the officer work in that capacity?

  • Written documentation is needed as back up to support how the compensation dollar amount was derived.


Call Malvern Tax & Ledger, Inc. to assist you with this issue.