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Everything you need to help you launch your new business entity from business entity selection to multiple-entity business structures.
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Everything you need to help you launch your new business entity from business entity selection to multiple-entity business structures.
Designed for rental property owners where WCG CPAs & Advisors supports you as your real estate CPA.
Everything you need from tax return preparation for your small business to your rental to your corporation is here.
WCG’s primary objective is to help you to feel comfortable about engaging with us
Table Of Contents
By Jason Watson, CPA
Posted Thursday, November 2, 2023
Calculating reasonable S Corp officer compensation and shareholder salary is like nailing Jell-O to the wall. If you want to eliminate (not just reduce) the risk that the IRS will disagree with your calculations, you can pay out your entire economic benefit from the business in shareholder salaries. That seems silly, right? This would make the S corporation’s efficacy zero. How do we approach this then?
As you go through this chapter, keep two simple things in mind. First, the word reasonable has an antithesis, and can be defined in the negative. In other words, while it is hard to define reasonable, we can confidently define what is unreasonable. Paying $5,000 in shareholder salaries on $100,000 in net business income (profits) for a one-person consultant S Corp is unreasonable. Most people would agree with that sentiment.
One more stab using different words to convey this concept- rather than eclipsing the reasonable threshold, perhaps view determining an S Corp salary as not wanting to trip the unreasonable wire.
To be certain, the IRS and others use the word reasonable, but they too cannot define what is precisely reasonable and then what is precisely not reasonable. While the sparring of reasonable and unreasonable presents as a binary situation with a winner and a loser, it is anything but binary. As such, we are back to hammers, nails and Jell-O.
Second, we encourage you to embrace the fluidity of reasonable shareholder salary. If you like straight lines and clean garages, this will bug you a bit. At the same time, when you always have the option to pitch an argument with reasonable salary calculations, or anything else in life, that puts you in a favorable position. So, you’re saying there’s a chance. Yes! We are!
This is our favorite chapter not because we like Jell-O shots, because we certainly do at any age or life stage, but because it is the most cerebral S Corp topic and the one we get asked about the most.
In this chapter we will review-
Here we go!
This KB article is an excerpt from our 420+ page book (some picture pages, but no scatch and sniff) which is available in paperback from Amazon, as an eBook for Kindle and as a PDF from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles online, click on the fancy buttons below or visit our webpage which provides more information.
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Please use the form below to tell us a little about yourself, and what you have going on with your small business or 1099 contractor gig. WCG CPAs & Advisors are small business CPAs, tax professionals and consultants, and we look forward to talking to you!
The tax advisors, business consultants and rental property experts at WCG CPAs & Advisors are not salespeople; we are not putting lipstick on a pig expecting you to love it. Our job remains being professionally detached, giving you information and letting you decide within our ethical guidelines and your risk profiles.
We see far too many crazy schemes and half-baked ideas from attorneys and wealth managers. In some cases, they are good ideas. In most cases, all the entities, layering and mixed ownership is only the illusion of precision. As Chris Rock says, just because you can drive your car with your feet doesn’t make it a good idea. In other words, let’s not automatically convert “you can” into “you must.”
Let’s chat so you can be smart about it.
We typically schedule a 20-minute complimentary quick chat with one of our Partners or our amazing Senior Tax Professionals to determine if we are a good fit for each other, and how an engagement with our team looks. Tax returns only? Business advisory? Tax strategy and planning? Rental property support?
Taxes can be tricky. Chat with a WCG human now and get questions answered.
Everything you need to help you launch your new business entity from business entity selection to multiple-entity business structures.
Designed for rental property owners where WCG CPAs & Advisors supports you as your real estate CPA.
Everything you need from tax return preparation for your small business to your rental to your corporation is here.
WCG’s primary objective is to help you to feel comfortable about engaging with us