CFO & Strategy

Reasonable Compensation

Definition

The IRS standard for owner-employee salary in S-corporations — must be 'reasonable' for services performed before owners can take additional profit as distributions.

Why it matters

Underpaying owner-employees triggers IRS reclassification risk and back payroll taxes. The right balance requires industry benchmarking and documentation.

Where this comes up

Owner Pay Strategies: Salary, Distributions, and Tax Planning

Back to glossary

Want this kind of clarity in your finance function?

Schedule a free Financial Alignment Call to discuss how outsourced bookkeeping, controller oversight, or fractional CFO support can fit your business.

Schedule a Call

The Aligned Ledger — Boutique Bookkeeping & Fractional CFO Services in Dallas–Fort WorthBoutique bookkeeping, financial reporting, and fractional CFO support for business owners and multi-entity families. Serving McKinney, Plano, Frisco, Dallas, Fort Worth and clients nationwide.