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How Are You Determining Reasonable Compensation – Legal Fact or Convenient Fiction?
Accountants are facts and figures folk. Accountants rely on data and analysis, not myths and tales. Well, not always. In 2020, we asked 4,671 tax advisors whether the IRS recognized rules of thumb such as a 50/50 split between distributions and reasonable compensation. Thirty-three percent said yes. The IRS “rule of thumb” is a myth. But it’s a fact that we found 1,555 professional accountants who relied on this myth. It’s not that they didn’t have the facts. All of those surveyed had just attended a continuing education class on reasonable compensation that walked them through, step by step, recent court cases, the IRS’s definition, rules, guidelines, and criteria for determining reasonable compensation. Nowhere in the class were they taught that the IRS accepts “rule of thumb” or “safe harbor” calculations based on percentage of distributions, sales, or revenue. So, what gives? Why do so many accountants believe these rules of thumb are actually “rules”? And more importantly, does the IRS follow the same?
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CURRENT EDITION
Leaving the United States, Part III: Dual Citizenship
In Part I of this three-part series, we discussed the implications and taxes for American expatriates. In Part II we turned our attention to renouncing citizenship. Here in Part III, we will consider the halfway point of dual citizenship. And as you would expect, taxes are a serious consideration.
Reflecting On Rothing
I have been dissatisfied with most of the articles that I have read about what I call Rothing, i.e. foregoing a deduction for retirement savings with the prospect of tax-free distributions in the future or taking the tax hit on a deferred account to convert it to a tax-free account. The articles generally have a pro-Roth bias. Suze Orman, for example, swears by Roths. They also tend to not have numbers in them. What I am going to do here is to reflect on the idea of Rothing and discuss what I see as some key numbers. I’m not going to dive deep into technical issues.
Considering a Historic Building for Your Business? These Tax Credits are Good News
Historic buildings make a beautiful location for doing business. Unfortunately, many of them may seem out of the price range of small business owners. But, that’s not necessarily the case. The state and federal governments have an interest in preserving these properties, and they are willing to give you tax credits for buying and restoring a historic building. The credits reimburse a large proportion of your restoration costs. This really is a great incentive to go for a building that will give your company a unique and professional feel.
SIMPLIFIED TAX STRATEGIES &
PRACTICAL IMPLEMENTATION
Think Outside the Tax Box provides tax reduction strategies along with practical
implementation advice in order to reduce your clients’ federal tax bill with ease.
