Tax Planning
Reasonable compensation is a documented conclusion, not a guess
The problem
Owner wages are often set at whatever the payroll provider suggested years ago, with no documentation behind it.
Why it matters
This is one of the most commonly examined positions for closely held businesses. The exposure is not just tax — it is penalties and interest on multiple years.
How to know if you have this
- Owner wages are a round number chosen without analysis
- No file documents how the figure was determined
- Compensation is unchanged despite significant profit growth
- Distributions dramatically exceed wages
How Advisory Motion solves it
- 01Analyze role, hours, responsibilities and comparable market compensation
- 02Document the conclusion in a file you could hand to an examiner
- 03Coordinate the wage, distribution and retirement contribution plan together
- 04Update the analysis each year rather than carrying it forward silently
Illustrative example
A defensible file, not a lower number
The analysis supported the existing wage but the business had no documentation. Building the file cost a fraction of what a contested exam would have.
Illustrative composite · not a client identification
Where this connects