How to Ensure "Reasonable" Compensation

If you’re the owner of an incorporated business, you may want to know how to ensure reasonable compensation. You know there’s a tax advantage to taking money out of a C corporation as compensation rather than as dividends. The reason: A corporation can deduct the salaries and bonuses that it pays executives, but not dividend payments. Therefore, if funds are paid as dividends, they’re taxed twice, once to the corporation and once to the recipient. Money paid out as compensation is only taxed once — to the employee who receives it.

Read our blog post for four steps you can take to make it more likely that the compensation you earn will be considered “reasonable,” and therefore deductible by your corporation.