According to the IRS website, reasonable compensation in relation to S Corporations is as follows:“Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation. S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.”What does this mean? Calculations of reasonable compensation can include all services that the shareholder employee provides. If they answer the phone, if they file, if they do other services, this can be used to calculate shareholder compensation. Court cases have used a calculation similar to this, and a Public Accounting company had less than 50% of the net income of the company required to be paid as reasonable compensation. This is an area that calculations can bring in a lower reasonable compensation than people think. There are software packages that can calculate this compensation to minimize it. This is an area that should be explored to potentially save payroll [...]
Why I Give New Potential Clients a Free Initial Consultation
When I get a call or email from a potential new client wanting to set up a meeting to meet me, I always give a free initial consultation. I don’t want any pressure on either the client or myself, we will just meet and talk and get to know one another. The potential client can tell me about themselves and their business if they have one, and I can talk some about the way I run my practice and ask about the services they need. I always request they bring at least their last years tax returns – looking at them and asking about any current changes from last year will allow me to quote them a flat fee to do their work. I explain the fee and then they can make a decision about hiring me to work with them. If it doesn’t work out on either side they are under no obligation and we can part on a friendly basis (who knows, they might still want to refer me another person who might work better with me.) Anyway, the free consultation is one of the ways you can count on us to count for you.For financial, accounting and [...]
Why I Hate Taxi Drivers (Not the People, How They Bill)
This title will probably cause a stink, but I hate taxi drivers (not them personally or their driving ability – so far I haven’t gotten in an accident with them) and the way they charge – the meter starts running when you get in the cab. This may be fine for the taxi business but I don’t think it fits in an accounting and tax practice. I frequently hear from other CPAs that “we are selling our time” and I respectfully disagree. We are providing services and we have a pretty good idea of what a fair fee for that service is. When you bill on an hourly basis the client doesn’t know how much he will have to pay, so he is not happy. Also an open ended bill has the stigma of a ‘padded’ bill, which also makes clients unhappy. An unhappy client will complain and not refer his friends, business associates or family to you. So I always try to break an engagement into a series of projects, then quote a flat fee for that project based on my experience in providing that service. The client knows in advance what they are paying and I know what I [...]