What if Reasonable Compensation Is Set Wrong?

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FAQ

What happens if my reasonable compensation is set wrong?

The IRS can reclassify your distributions as wages and assess back payroll tax, along with penalties and interest.

This doesn't typically undo your S-Corp election itself, but getting the number wrong is expensive, which is why we run a real analysis instead of guessing at a figure.

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General Questions

Do I need to run payroll if I become an S-Corp?

Yes. An S-Corp requires you to pay yourself a reasonable salary through payroll before taking any additional distributions.

We set that up correctly as part of structuring your S-Corp, so it's handled from day one rather than something you have to figure out separately.

Do you handle S-corp elections?

Yes. We help business owners decide whether an S-corp election makes sense, and if it does, we make sure the benefits side is set up to work in your favor.

How much could an S-Corp save me?

For many business owners in the $100,000 to $400,000 revenue range, a properly structured S-Corp can save $5,000 to $20,000 a year.

The real number depends entirely on your profit and your current setup, which is why we run your specific numbers instead of quoting a general estimate.

What happens if my reasonable compensation is set wrong?

The IRS can reclassify your distributions as wages and assess back payroll tax, along with penalties and interest.

This doesn't typically undo your S-Corp election itself, but getting the number wrong is expensive, which is why we run a real analysis instead of guessing at a figure.

What if I miss the S-Corp election deadline?

You're not necessarily stuck waiting a full year. The IRS allows late-election relief in many cases when there's reasonable cause and you've been operating as though the election were already in effect.

We can help you pursue that relief instead of assuming the window has simply closed.

What's the difference between an LLC and an S-Corp?

An LLC is a legal entity structure. An S-Corp is a tax election you can make on top of an LLC, it doesn't replace your LLC, it changes how you're taxed.

Most business owners we work with keep their LLC and simply elect S-Corp tax treatment once the numbers make it worthwhile.

When should I set up an S-corp?

It depends on your profit level and how the business is structured today. There's a point where the tax savings outweigh the added paperwork, and we can walk through where that point is for your specific numbers.

How do I start my remodel?

Just reach out for a free quote. We’ll walk you through every step, from planning to finish.

What payment options are available?

We accept credit cards, checks, and bank transfers. Let us know what works best for you.

How do I get in touch?

Call, email, or use our contact form. We’re here to help and usually reply the same day.

Can I change or cancel my project?

Yes, you can make changes or cancel anytime before work begins. Just let us know.

Still need help? We’re happy to chat.

Talk to our team

California tax expertise, serving owners nationwide. Bookkeeping, tax prep, tax reduction, and advisory under one roof.

+1 (818) 640-6808

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