Sample Reasonable Compensation Reports
RCReports blends IRS criteria, court cases, and our proprietary database of wages to provide accurate and defensible reasonable compensation reports.
The Cost Approach (aka Many Hats Approach) is generally best for small businesses where the business owner provides multiple services for the business.
The Market Approach (aka Industry Comparison Approach) generally works best for medium and large businesses where the owner provides only one duty: managing the business.
The Income Approach (aka Independent Investors Test) generally used in litigation to support or discredit a primary approach such as the Cost or Market.
The Entity Selection Planner determines what business entity is most beneficial to your client and generate a report that details savings over a ten year period.
Cost Approach
The Cost Approach (aka Many Hats Approach) is generally best for small businesses where the business owner provides multiple services for the business.
Best viewed on desktop
Market Approach
The Market Approach (aka Industry Comparison Approach) generally works best for medium and large businesses where the owner provides only one duty: managing the business.
Best viewed on desktop
Income Approach
The Income Approach (aka Independent Investors Test) generally used in litigation to support or discredit a primary approach such as the Cost or Market.
Best viewed on desktop
Entity Selection Planner
The Entity Selection Planner determines what business entity is most beneficial to your client and generate a report that details savings over a ten year period.
Best viewed on desktop
$91,788
Cook County, IL
Reasonable Compensation Figure
Details the salary range for the owner’s industry and location and provides a suggested reasonable compensation figure.
Your Time
Breakdown of how the owner spends their time in the business. This information is based on the interview completed.
Your Compensation
How the compensation number is affected by each task the owner performs.
Compensation Details
Detailed breakdown of the compensation tied to each task that the owner performs.
Accounting – Finance – Bookkeeping
My Business
Task Category
Categories of tasks completed by the owner.
TaskPurchasing Clerk
ProficiencyAverage
Standard Tasks & Proficiency
Tasks commonly associated with running a small business and the Owner’s proficiency level for this specific task.
My Business Tasks
Specialized tasks the owner performs for their business that fall outside of standard business tasks.
Overall15%
Hours312
Wage$55.52
$41.03
Annual$34,644
$25,603
Percentage of Time & Annual Hours
Annual percentage of owner’s time spent on that task and hours per year the owner spends on this task.
Percentage of Time & Annual Hours
Annual percentage of owner’s time spent on that task and hours per year the owner spends on this task.
Hourly Wage & Annual Compensation
Hourly wage for this task based on location and proficiency and hourly wage x annual hours worked for that task.
Get your sample copy of the Cost Approach report
$275,211
Reasonable Compensation Figure
Quickly view the calculated reasonable compensation figure with supporting details.
Reasonable Compensation Calculation
Details the salary range for the owner’s industry and location and provides a suggested reasonable compensation figure.
Business Summary
Details the inputs provided to reach the suggested Reasonable Compensation figure.
How was my ‘Annual Salary’ or ‘Reasonable Compensation’ calculated?
Supporting Documentation
Details on how the reasonable compensation figure was calculated using RCReports.
Methodology
This report uses the Market Approach to determine a Reasonable Compensation figure.
The Market Approach compares the business owner’s compensation to compensation…
Methodology Description
Details on the specific approach selected for the reasonable compensation report.
Other considerations before deciding on a final Reasonable Compensation figure:
Additional resources:
Additional Resources
Additional tools and resources to help you as the practitioner finalize the reasonable comp figure, and to help the business owner further understand the figure.
Get your sample copy of the Market Approach report
Determination
Quickly determine which entity is most advantageous for your client over a 10-year projection.
Adjust
Adjust the report based on projected changes in profit and reasonable compensation YoY.
Upsell
Include your fees for additional services in the calculation to make upselling a breeze (example: payroll, corp tax prep, consulting/analysis, entity formation, etc.)
Get your sample copy of the Entity Selection report
$550,000
Reasonable Compensation Figure
Quickly view the calculated reasonable compensation figure with supporting details.
Reasonable Compensation Calculation
Based on what a hypothetical investor would be satisfied with when looking at the financial performance of the business in conjunction with the compensation level of the owner.
In this approach, if investors obtain returns above what they should reasonably expect, an employee’s salary is presumptively reasonable. This approach can only be used when you have Fair Market Value (FMV) for each year compensation is being evaluated.
Business Summary
Details of the report including owner’s name, business name, calendar year, location, and Fair Market Value calculations.
How was my ‘Annual Salary’ or ‘Reasonable Compensation’ calculated?
Supporting Documentation
Details on how the reasonable compensation figure was calculated using RCReports.
Methodology
This report uses the Market Approach to determine a Reasonable Compensation figure.
The Market Approach compares the business owner’s compensation to compensation…
Methodology Description
Details on the specific approach selected for the reasonable compensation report.
Other considerations before deciding on a final Reasonable Compensation figure:
Additional resources:
Additional information and help on the issue of Reasonable Compensation for
C Corporation owners can be found at:
Additional Resources
Additional tools and resources to help you as the practitioner finalize the reasonable comp figure, and to help the business owner further understand the figure.
Sample Language for your Corporate Minutes
Sample Language for Corporate Minutes
Add an additional layer of defensibility by adding the report to the company’s corporate minutes.