Shareholder Compensation...Rocket Science?

I am a part of a group of CPAs called THRIVEal, as most of you probably already know, and I have seen several conversations through LinkedIn this week with an accounting student.  This guy is asking questions that I never would have even thought to ask in college, like how to get ready to enter the job market and what to expect when working for a small firm versus a large firm.  I really just wanted to get a job and start working.  I didn't ask those hard questions, but I really should have.  I didn't know anything when I graduated, at least not about the real world of work.

I have also been receiving lots of questions from clients lately on how to structure compensation, as most of my clients are S-Corporations owned by one individual and are required by IRS to be on salary.  I get these questions because they have spoken to another fellow business owner who either wasn't paying himself/herself anything at all, or they've received a letter from IRS reminding them to be aware of the stiff penalties for not complying with the law.  Either way, they're scared or interested in finding an answer to the dilemma...to pay or not to pay?  They're asking the hard questions, too.

You must pay yourself.  Period.  How much?  Well, that's a little harder to say....

IRS requires that a shareholder's compensation be reasonable.  Compared to what?  Your friend's payroll?  Mine?  It has to be reasonable based on your particular business.  You can't take a $10,000 salary in a business where you're grossing $250,000 and then take $100,000 in dividends.  Conversely, you should not have to take a salary of $50,000 when you're grossing $60,000 and borrow money from yourself to pay your overhead.  It's something that takes a little work and some advisory.  Rocket science, it is not.  Necessary...it is.

How do we do this?  We sit down and determine the dollar amount that is reasonable based on your particular business.  We help you set up the payroll structure, frequency, and all those other little troublesome things like payroll tax deposits, quarterlies and annual filings.  Yeah, it's compliance and it's not sexy.  Again, it's necessary.  But think of how relieved you'll be when you know we're handling it for you....I feel better already.