Reasonable Comp Audits Coming?

If you’re an S-Corp owner, pay attention. Since 2021, the IRS has increased their enforcement of reasonable compensation audits for S-Corp owners.

If you’re an S-Corp owner, you’re required to run a “reasonable wage” for yourself based on your duties, industry, time in business, etc. Obviously, this will vary widely from individual to individual, thus it’s up to the taxpayer to be able to justify and substantiate why their wage is reasonable.

The IRS is concerned about wages being reasonable because of the payroll tax component. If an S-Corp owner is running an artificially low wage, they are avoiding payroll taxes and are instead taking the majority of their profits through distributions.

DBC tax & business advisors help business owners make these critical decisions while adhering to tax protocol. Contact us to get started!