"reasonable compensation" from S-Corp - Posted by James Buster

Posted by Dave Murray, Ohio CPA on June 05, 2003 at 10:00:38:

In my opinion it depends on the overall profitability of the S-Corp. Your hypothetical sounds a little light to me unless you move several $million a year. Let’s say you sell one a month for $100,000 and make $15,000 per flip. The corporation’s profit before overhead expenses is $180,000 and you are taking a wage out of that of $18,000, based on your 1.5% figure. If IRS examined that, they would probably argue that’s not a reasonable wage. I usually recommend you pay yourself what you would have to pay a general manager to do what you do if you were just a passive investor. I don’t know what that may be, $35,000-$50,000 possibly? If the corporation’s profit before owner’s salary is not that high, I generally recommend about half taken as wages, half as draws. Again, this depends on the particular circumstances. I hope this helps.

“reasonable compensation” from S-Corp - Posted by James Buster

Posted by James Buster on June 05, 2003 at 01:55:59:

In a standard realtor shop, as I understand it, a real estate agent ends up making a commission of ~1.5% of the gross sales price of a property, after the commission is split between them, the other brokerage, and their own broker (assuming 6% commissions). An agent would typically take home, before tax, about $1500 on the sale of a hypothetical $100,000 home. Would it be reasonable, therefore, to set one’s wages in a flipper S-Corp to be 1.5% of gross sales price paid as a straight commission?