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Tag Archive for Compensation

10 Reasonable Compensation Points To Discuss With Your Clients

10 Reasonable Compensation Points To Discuss With Clients

Without an accurate Reasonable Compensation figure, tax planning is just a guess.

1. Educate. Send an issue letter so your clients are thinking about Reasonable Compensation before you meet.

Most S Corp owners, once they understand the issue, will follow your advice as their Trusted Advisor. For those who don’t, sharing the issue letter will document your attempt to do so.
Download Issue letter HERE
2. Stress Test. Is your client’s Compensation figure Reasonable?

If it fails the stress test, it likely won’t survive a Reasonable Compensation challenge.
Download Stress Test HERE
3. Research. Provide an accurate, independent Reasonable Compensation Report to each shareholder-employee.

Research and documentation is now a “must have” with the passage of the TCJA.
4. Get Up-to-Date. Put Section 199A & the QBI on the meeting agenda.
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Did The IRS Really Lose? Lessons From The Davis Case

Paul Hamann -S Corp Compensation

The IRS usually wins when it challenges an S Corp.’s Reasonable Compensation in court. Over the years there have been in the neighborhood of 25 to 30 such cases. The IRS has come out on top in all except one: The Davis Case. What made Davis different? What valuable takeaways are there for you and your clients?

The case focused on two concepts that every S Corp. and business advisor should understand:

Officer in name only
Substantial services
DAVIS v. UNITED STATES (1994)

Background: Mile High Calcium was owned by Carol L. Davis and her husband Henry Adams. This case revolved around transfers in and out of Mile High Calcium from 1987 to 1989. The IRS re-characterized all transfers for the timeframe in question to Reasonable Compensation, resulting in assessed taxes, interest and penalties of $39,220. Carol L. Davis successfully sued the IRS for a partial refund based on the following two-pronged defense focusing on each of the two owners:
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Death And Taxes Under The Tax Cuts And Jobs Act

Mike Melbinger, Tax Connections

Sorry to inundate you with so many blogs, but I thought I would try to add a little levity to your day while we wait for the House and Senate to vote on the Tax Cuts and Jobs Act. I have posted on the “once a covered employee, always a covered employee” change to Section 162(m), which will have a tremendously negative effect on many companies. However, it is this point that my favorite paragraph in the Conference Committee report addresses: Read more

Compensation For Corporate Tax Executives—Friday, May 19th

Kat Jennings

You are cordially invited to a webinar on Compensation For Corporate Tax Executives. After spending a great deal of time this past year surveying tax executives on compensation, I am confident the information delivered during this webinar will be valuable to you.

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Compensation For Corporate Tax Executives Webinar – May 12

Kat Jennings

You are cordially invited to an educational webinar on Compensation For Corporate Tax Executives. After spending a great deal of time surveying tax executives on compensation, I am confident the information delivered during this webinar will be valuable to you.  We released a report on Lead Tax Executive Compensation earlier this year at a cost of $2500 per report, this presentation will provide an overview and understanding of tax executive compensation we researched and published.

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Personal Services Provided By U.S. Person Coming To Canada

Larry Stolberg

Similiar to the U.S. rules, Canada may tax personal services provided in Canada by U.S. persons who are not residents of Canada for income tax purposes. The provisions governing this are regulations 102, 105 and section 115 of the Income Tax Act (‘ITA”).

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Motivate Management To Listen To Tax Department Compensation

Strategies that motivate management to listen to the Tax Department is what we will address in this week’s post. Although there are dozens of topics I could address,  this post will address a couple of challenges faced by most anyone leading a tax organization when it comes to compensating your tax team.  This post will also provide solutions; these are solutions intended to make your job leading a tax organization easier. Although I know better than to put “ Head of Tax” and “Easy” in the same line, leading a tax organization is one of the toughest jobs out there today. Read more

S Corporation Shareholder Compensation – How Much Is Reasonable?

squeeze businessA shareholder-employee’s compensation from an S corporation is often subject to IRS scrutiny because S corporation flow-through income enjoys an employment tax advantage over that of sole proprietorships, partnerships and LLCs. This advantage finds its genesis in Revenue Ruling 59-221, which held that a shareholder’s undistributed share of S corporation income is not treated as self-employment income. In contrast, earnings attributed to a sole proprietor, general partner or many LLC members are subject to self-employment taxes.

As employment tax rates have climbed, this advantage of operating as an S corporation has become magnified. Because S corporation income is not subject to self-employment tax, there is tremendous motivation for shareholder-employees to minimize their salary in favor of distributions, which are also not subject to payroll or self-employment tax.

So how does a taxpayer or more likely his advisor determine what is “reasonable compensation” for an owner/employee of an S Corporation? Read more