Reasonable Compensation in S-Corporations

S-Corporations are the preferred entities for any small, closely held active business.  The reason for this preference is due to the ability to place a 'cap' on the social security paid for the corporation's owners.  S-Corporation owners only pay social security on wages paid, as compared to self-employment taxable entities such as sole proprietorship and partnerships who are required to pay social security on the entirety of the business profits. The effective use of an S-Corporation can save thousands of dollars to a profitable business.   There is, however, one key factor in avoiding IRS scrutiny.  The S-Corporation cannot pay [...]