S-corporation reasonable compensation is one of the most misunderstood concepts in tax law. And that’s saying something, considering how mind-numbing U.S. tax laws are.
I’m encountering more and more sole proprietors who want to form S-corps so they can save on taxes. It’s a good strategy — if you know what you’re getting into. The problem I encounter with these clients is: almost all of them engage in mystical thinking about the wonders of S-corps.
Further discussion of S-corporation compensation considerations.