There are times when every small business owner’s ego can be an asset, although when it comes to Reasonable Compensation and S Corps, having a big ego could cost your client thousands of additional dollars in payroll taxes and QBI deductions.
Let’s look at an example: Meet Joan and her over-inflated alter ego Joanna.
When Joanna completes a Reasonable Compensation survey, she does so with an immensely inflated ego. She doesn’t bother to read the job descriptions and selects tasks based solely on title; there is no task Joanna –doesn’t consider herself awesome at completing; so she rates her skill level as high for each selected task on the survey.
When Joan fills out her Reasonable Compensation survey, she takes her accountant’s advice and sets her ego aside. She reads through the job descriptions and chooses tasks that best fit what she really does for her business. She is honest with herself, and acknowledges she can’t possibly be impeccable at every task and so rates her skill levels appropriately.