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S corporation reasonable compensation

Mar 04, 2020 · 4 min read

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Ensuring that an S corporation pays reasonable compensation to a shareholder-employee in exchange for services provided by the shareholder-employee is important in protecting both from assessments of tax, penalties, and interest. S corporation shareholders must include in income their pro rata share of the S corporation’s earnings for the year. A shareholder-employee is not subject to self-employment taxes on a deemed or actual distribution of S corporation income, and the corporation does not pay any employment-related taxes on the distribution

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