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Avoiding an IRS Audit

Making a mistake with reasonable compensation is one of the fastest ways a business owner can be flagged for an audit. Avoid being targeted by the IRS by paying yourself a “reasonable” amount.

What is Reasonable Compensation and How do I Calculate it?

According to IRS.gov, reasonable compensation is the value that would ordinarily be paid for like services by like enterprises under like circumstances. Reasonableness is determined based on all the facts and circumstances.

There is no one size fits all formula for calculating reasonable compensation for any given business owner. What is considered reasonable varies, depending on your role, industry, experience and other factors.

To help our business owner clients stay in compliance, we run them through an in-depth questionnaire that outputs an informative result. The system is fast, efficient and a valuable tool for avoiding an unwanted audit.

To support the compensation owners are currently receiving, our tax team also recommends running annual reasonable compensation reports.

Find the Sweet Spot

Your annual compensation directly impacts how much you pay in self-employment taxes – so you want to get it just right. Accountability Services gives you peace of mind in knowing you are neither paying yourself too little, nor too much.