Reasonable Compensation Services

Pay Starts with Z™

Navigating the complexities of reasonable compensation can be challenging, especially when IRS compliance and business valuations are at stake. At Zayla Partners, we provide more than just standard compensation reports. We offer expertise, accuracy, and an unwavering commitment to delivering unbiased, independent, and market-true evaluations.

How Our Experts Can Help

  • Business Valuations: Utilize our market executive compensation reports to determine a value for your company.
  • IRS Reasonable Compensation Reports: We have 2 decades of experience advising companies how to compensate their key executives. Our primary service ensures that businesses have reports that are market competitive and IRS compliant.
  • Tax Strategy Consultation: Beyond compliance, we advise on how to leverage compensation for optimal tax strategies.

How We Determine Reasonable Compensation for S Corp and Other Entities

  • Extensive Data Analysis: Our reasonable compensation market analyses utilize extensive market data, for base salaries, annual incentives, long-term compensation benefits for a comprehensive and accurate market analysis.
  • Tailored Approach: We consider various factors including the nature of the business, the individual’s role, industry benchmarks, and company performance.
  • Comparative Analysis: We provide a sample compensation analysis report that compares your executive compensation compared to market competitive practices.
What is IRS Reasonable Compensation?

Reasonable compensation refers to the value of services provided by a company executive. The IRS scrutinizes this to ensure that companies aren’t disguising dividend distributions as deductible compensation expenses. It is, therefore, crucial to have accurate and defendable reports that stand up to such examinations.

The concept of reasonable compensation finds its roots in the IRS’s efforts to ensure equity in taxations. Corporations, naturally incentivized to minimize their taxable income, might sometimes disguise non-deductible dividend distributions as deductible compensation expenses. This is where the IRS steps in. By scrutinizing compensation amounts, the IRS ensures that businesses aren’t evading taxes by overcompensating owner-employees.

Why is this significant for businesses?


The reason is twofold:

Overcompensating or under-compensating can have long-term implications on the financial health of a company. Overcompensating can lead to unnecessary tax burdens, while under-compensating can lead to potential legal disputes and disgruntled employees.

The compensation structure often mirrors a company’s growth strategy. For instance, a startup might compensate more in equity and less in salary, reflecting a long-term growth vision. Hence, determining what’s reasonable is not just a compliance necessity but a strategic decision.

Several factors play into deciding what constitutes as reasonable compensation for executives:

  • Roles and Responsibilities: The duties and responsibilities undertaken by the employee are assessed. A CEO’s compensation would naturally differ from a junior manager.
  • Industry Benchmarks: How does the compensation compare with similar roles in the industry? This provides context and ensures that the compensation isn’t an outlier.
  • Company’s Financial Health: The compensation should reflect the financial health and performance of the company. A company in its nascent stages might not be able to afford the same compensation packages as an industry giant.
  • Company Performance: The financial performance of the company compared to relevant industry peers is a significant factor considered for reasonable compensation.
  • Experience and Qualifications: The background, qualifications, experience, and expertise of the owner-employee come into play. An industry veteran with a track record of success would naturally command a higher compensation.
  • Economic Conditions: Broader economic conditions and trends can also impact compensation. In a booming economy, compensation might be higher, while in an economic downturn, there might be adjustments.
  • The Balance of Salary and Dividends: For S Corporations, in particular, the balance between salary (which is subject to employment taxes) and dividends (which aren’t) is crucial. The IRS keeps a keen eye on this to ensure that owner-employees aren’t taking an unreasonably low salary and compensating the rest in dividends, thereby dodging employment taxes. This balance, while optimizing for tax efficiency, should still fall within the bounds of reasonableness.

Reasonable Compensation FAQ

Through a combination of industry benchmarks, data analysis, and understanding of your specific business operations, we provide accurate and defensible analyses.

Our knowledge and understanding of total compensation, our experience advising company’s how to compensate executives, our commitment to detail, our unbiased approach, and our use of current market data sets us apart, especially when compared to generic technology platforms that only consider 1 element of compensation.

Certainly. Reach out to our team, and we can provide a detailed sample that showcases our comprehensive approach.