What exactly is a "reasonable compensation study"? Is this something any CPA can do or do you need a specialist?

A reasonable compensation study is essentially documentation that supports the salary you've set for yourself as an S-Corp owner. It doesn't have to be a formal study done by a third party (though those exist), but should include evidence showing your salary is appropriate based on factors like: - Industry salary surveys for similar positions - Your qualifications, experience and time committed to the business - Geographic location salary data - The size and complexity of your business - Compensation for non-owner employees performing similar work - What competitors pay for similar roles Most CPAs who work regularly with small businesses and S-Corps can help put this together. The key is having it prepared before the IRS asks for it. If you're retroactively becoming an S-Corp and the IRS reviews your election, having this documentation ready shows you're making a good faith effort to comply with the "reasonable compensation" requirement.

This is really helpful, thank you! I'm curious about the 60% salary figure you mentioned - how did you arrive at that percentage? I've been researching and seeing conflicting advice about what constitutes "reasonable compensation." Some sources say 40-60% of net income, others suggest looking at what you'd pay someone else to do your job. Did the IRS question your salary determination at all during the process, or did having the industry data backing it up make it smooth sailing? Also, when you say it took 6-8 months to get fully resolved, was most of that time just waiting for IRS processing, or were there back-and-forth communications required?

I just reviewed my sale agreement and found a section titled "Tax Distributions for Departing Shareholders" that I completely missed before! It says the company must make distributions to cover tax liabilities on allocated profits for the year of departure. Should I get a lawyer involved or just approach my ex-partners directly?

I'd suggest approaching your former partners directly first with a clear reference to the specific clause in your agreement. Send them a professional email quoting the exact language and calculating what you believe you're owed based on the K1 allocations. If they're reasonable business people, they may acknowledge the oversight and work to make it right. Only escalate to legal involvement if they refuse to honor the agreement or dispute your interpretation. Many times, this is just an oversight rather than intentional, especially if the transaction was complex.

This is super important. I had a similar situation and discovered my K1 showed income for the full year even though I sold my shares in July. Required an amended K1 and saved me about $30k in taxes.

@Anastasia Smirnova You should definitely verify this! Look at your K1 Schedule K-1 box 1 ordinary (business income -) it should show income only for the days you actually owned shares in 2024, not the full year. If you sold in the middle of 2024, your allocation should be significantly less than a full year s'worth. Since you mentioned the sale was agreed to in 2024 but completed in early 2025, the key question is when you legally ceased to be a shareholder for tax purposes. This could make a huge difference in your tax liability - potentially tens of thousands of dollars. You might want to request the company s'books showing exactly how they calculated the per-share, per-day allocation for your K1. If they got this wrong, you ll'need an amended K1.

I feel your pain! Four months of delay letters is incredibly frustrating, especially when you have clear documentation showing their error. The scanning issues seem to be getting worse - I've heard from multiple people dealing with similar problems where handwritten numbers get completely mangled. Have you considered trying any of the tools or services mentioned earlier in this thread? The Claimyr callback service that @Grace Durand and @Zoe Wang used might help you get through to someone who can at least put notes on your account to stop the automated collection process while they sort this out. Also, since you re at'the 4-month mark, you might want to start preparing for the 6-month milestone when you can escalate to your Congressional representative s office'if the IRS still hasn t acted.'Keep all those delay letters as evidence of how long this has been dragging on!

This is really encouraging to hear that you eventually got it resolved! Seven months is a long time to wait, but knowing there's light at the end of the tunnel helps. I'm curious - when your state representative's office got involved, did they contact the IRS directly or did they have you submit additional documentation through them? I'm keeping detailed records like you suggested, including screenshots of my online account showing the incorrect balance. It's reassuring to know that the Congressional route actually works when the normal process fails. Did you get any pushback from the IRS about the interest they had charged on the incorrect amount, or did they automatically reverse all of that once they fixed the scanning error?

Is it just about WHERE the childcare happens? My mother-in-law watches my kids at my house 3 days a week and at her house 2 days. How would we handle that split situation?

It's not just about location - the key factor is whether she has control over how the work is performed or if you're directing her activities. If she's essentially following your schedule, using your supplies, and you're controlling when and how she provides care, she's likely a household employee regardless of location. For a split situation like yours, the IRS would look at the overall arrangement. If the majority of control rests with you (setting schedules, providing materials, directing activities), then the entire arrangement would likely be treated as household employment, even if some care happens at her house. However, if she has significant independence - like setting her own rates, providing her own supplies, caring for other children, and having control over her methods - she might qualify as an independent contractor for the whole arrangement. The $2,600 threshold would apply to your total payments to her for the year, not split by location.

This is such great advice about keeping detailed records! I'm actually in a very similar situation - just started paying my aunt to watch my twins, and I had no idea about the household employment threshold. One question about the written agreement you mentioned - are there specific things that should be included to help establish whether someone is self-employed vs. a household employee? Like should it specify that she sets her own rates or methods of care? I want to make sure we document this correctly from the start rather than trying to figure it out later when tax time comes around. Also, do you know if there are any templates or examples of these types of family childcare agreements that might help ensure we're covering all the important points?

That's super helpful, thanks! Did you need to work with a specialized CPA to get the aggregation right? I'm worried my regular tax guy might not be familiar enough with these specific QBI rules for architects.

I'd definitely recommend finding a CPA who specializes in business taxation, especially if you're dealing with multiple entities and aggregation elections. The QBI rules are still relatively new (since 2018) and many general tax preparers haven't fully mastered the nuances, particularly for professional service businesses like architecture. The aggregation election can be really powerful but there are strict requirements - you need to demonstrate that the businesses operate as an integrated economic unit, share facilities, employees, or significant business operations. Just having the same owner isn't enough. For your situation with design services, project management, and product design, you'll want to document how these activities are interconnected and support each other. The IRS looks for things like shared marketing, overlapping customer bases, shared administrative functions, etc. One thing to watch out for - once you make the aggregation election, you're generally stuck with it unless there's a material change in facts and circumstances. So make sure it's the right move long-term, not just for one tax year.

That's a really interesting angle I hadn't considered! I'm also a mechanical engineer dealing with the phase-out, and I've been so focused on the W-2 wage limitation that I completely overlooked the qualified property component. Do you know if leased equipment counts toward the qualified property test, or does it have to be owned outright? I lease most of my CAD workstations and some testing equipment through my business, but if purchasing them could help with QBI calculations, it might make sense to restructure those arrangements. Also wondering about software - I spend probably $15-20k annually on various engineering software licenses. Some are subscription-based, but others I could potentially purchase as perpetual licenses if that would count as qualified property for depreciation purposes. Has anyone worked with a tax professional who's specifically knowledgeable about maximizing the property component for engineering firms? This thread has been way more helpful than the generic QBI advice I've been finding online.