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The IRS requires “Reasonable Compensation” be paid to S-Corporation Shareholders and
General Partners in a Partnership in order to
avoid a notice or audit. The question, therefore, is, “What is
reasonable?” Below are three methods to
determine a reasonable salary with a focus on the Cost Approach preferred for
closely held entities which represent the majority of clients in my practice.
The Three Methods of Determining
Reasonable Compensation
It is important to match each method with the business’ size
and business owner’s job duties.
