Shareholder Reasonable Compensation – S Corporation
It is important to ensure that you are paying reasonable compensation within your S Corporation to any owners or shareholders.
As a shareholder or owner, if you have taken distributions or draws during the year, then you need to evaluate the amount of wages paid to any owners or shareholders.
The IRS defines Reasonable Compensation as the “value that would be ordinarily paid for like services in a like enterprise under like circumstances”.
If you have taken distributions or draws, the IRS can recharacterize your distributions or draws as wages. If you have not taken distributions or draws, then the IRS does not have a basis to recharacterize any distributions or draws into payroll compensation. If you would like to review, please contact me for an appointment.
