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.