Calculating Reasonable Compensation
Since reasonable compensation is important for S-Corporate Owners here is a list of some of the information that should be considered when calculating it.
What would you need to pay someone else to do what you do? Which leads to the question just what do you do as many business owners where a lot of hats and each of those hats can have a different value. For example, if your 40-hour week include the following activities the value you of each needs to be considered. 4 hours shopping for supplies, 6 hours making deliveries, 10 hours bookkeeping and administrative activities, 15 hours of sales activities and 5 hours of executive management activities the weekly amount of reasonable compensation might be calculated as follows.
Remember that every business owner’s job is unique and the time spent for each activity will vary along with the applicable rate. Applicable rate should be those paid by similar business of similar sizes. What is reasonable for a pizza delivery business owner would not be anywhere near what is reasonable for an attorney or doctor.