Reasonable Compensation
will your business stand up against reasonable compensation concerns?
We can protect you if the IRS comes at you with questions about reasonable compensation.
What makes reasonable compensation?
People will do nearly anything to save on their tax bills.
Small businesses like single-owner S-corps have to do everything they can to reduce their tax bills in order to stay competitive. That’s why it’s my job to help you keep as much of your money in your pocket as legitimately possible.
But it’s also my job to let you know when one of the practices that once worked to lower your tax bill starts raising red flags at the IRS.
If you’re one of the many single-owner S-corporations who gave yourself a meager salary and took compensation in the form of dividends instead…
Find out more about BTM’s other services
WE NEED TO TALK.
The IRS has been auditing S-Corporations with a focus on what is called “reasonable compensation” concerns.
In these audits, the IRS asks business owners to prove the compensation they claimed as income in past years was reasonable.
In many cases, these businesses lose the audit because they had no strong basis for the income claimed. The result is all income taken out of the company is reclassified as regular income and taxed accordingly with the associated penalties and interest.
Ouch!
What can you do about it?
First of all, don’t panic. I can help you.
The best solution is to partner with a firm like Books, Taxes, and More to have a formal study of compensation.
This study produces a report that answers all the questions the IRS may have concerning the salary of the business owner in the area where the business is headquartered.
It takes into account the business owner’s:
- education
- skill level
- years of experience
- Plus, the business location and industry norms
We submit the report that we already have prepared and any question of compensation salary versus dividends taken is settled.
Our process has never been disputed.
Want to make sure you’re protected in the event of an IRS audit? Get in touch today for your free consultation.
Case Studies
How hard is it to do your own books?
If you’ve ever suffered the shame of calling in a pro after trying to DIY, you’ll relate to this situation.
When one business owner came to BTM for bookkeeping help, his accounting systems were in a bit of a state. After being with the company for decades, his bookkeeper finally retired. Instead of hiring a new one, he decided to save on the salary and keep his own books. By the time he came to us, pretty much every part of his financials needed to be untangled.
- His accounting software was archaic
- He had no idea if he was profitable or not
- His payroll was set up wrong (potential disaster)
- His business license had expired (potential disaster)
- He was behind in his taxes (potential disaster)
- He was behind in payments (potential disaster)
- He was paying a fortune in unnecessary banking and merchant fees
Solution:
- I moved him on to QuickBooks
- Reconciled all of his bank accounts
- Switched to banking and merchant services with lower or no fees
- Updated his business license
- Got him current with every regulatory agency
- Made sure all of his accounting systems were set up properly
For his flat monthly fee, I fixed all of the issues that could have gotten him into serious and expensive trouble and created a plan to keep him on the accounting straight and narrow.
Make your business more profitable today.
Call for a free consultation.
What Clients Say
Understands small business challenges
~ Bill Head, Auto Radio
A business partner who works magic
I have had a wonderful partner in Steve Perry of Books, Taxes & More, LLC allowing me to focus on what I do best. He is the one person I trust to advise me on all tax matters. Over the past several years, Steve has guided my company on a myriad of tax issues. He has consistently helped me document and prepare returns to minimize my tax liability….Read More
~ Stevee Ashlock , President StoneyBrook Productions
Highly recommend
I hired Books, Taxes & More to prepare my 2018 business and personal returns and they were stellar! Since then I’ve needed their assistance several times and there has never been a hesitation or charge. Highly recommend them; they are very knowledgeable and professional!
~ Gary Daniels