An owner compensation review that starts with the work

Owner payments need a clear purpose and consistent records. A salary, a distribution, a reimbursement, and a loan are not interchangeable labels. For an S corporation, the IRS requires reasonable compensation for shareholder services before non-wage distributions are used as a substitute for that compensation.

Document responsibilities

Describe the owner's duties, time spent, experience, management responsibilities, and the work performed by other employees. Bring payroll records and relevant compensation information to the review. A percentage-of-profit shortcut should not replace an analysis of the services actually provided.

Reconcile what the books show

Review the payroll ledger, owner distributions, expense reimbursements, and shareholder loan accounts together. Ask the adviser to identify amounts needing correction and explain how those corrections flow into the books and returns. Schedule another review when the owner's role changes materially.

Bring this to the conversation.

• Owner job description and time commitments
• Payroll records and existing wage calculation
• Distribution and loan-account activity
• Comparable compensation information

Three questions worth asking.

1. What evidence supports the compensation amount?
2. Do the books distinguish each type of owner payment?
3. When should we reassess the owner's role?

Turn the discussion into a next step.

Ask for a written action list that identifies what should happen, who is responsible, and when the team should review the result. Keep supporting documents with the decision so the books, payroll, and return preparation can follow the same facts.

Reference and applicability.

Related IRS guidance. The checklist and meeting agenda are editorial preparation tools, not an IRS-prescribed procedure. Tax treatment, elections, and deadlines depend on the facts and applicable law. This page does not establish an advisory relationship.