Reasonable Compensation

For the owners of an S-corporation there is always the allure to minimize their own wage for one very simple reason; to avoid payroll taxes. While I certainly understand the desire to pay as little in the way of federal payroll tax as possible, the IRS doesn’t take kindly to the practice of understating what they deem to be reasonable compensation.

Over the years the IRS has made their desire that owners of S-corporations report a reasonable wage on the corporate returns a high profile audit item. In fact the IRS has prevailed, through the courts, in the enforcement of this item.

The harsh reality then is that this is not an area where taxpayers want to push the envelope. It will be a losing proposition.

For an excellent summary of this issue see the attached hyperlink:


UHY Reasonable Compensation