Reasonable compensation

In accounting, reasonable compensation means the wages an S corporationEntity typesS corporationA domestic corporation, or an LLC eligible to be treated as one, that has elected on Form 2553 to pass its income, losses, deductions and credits through to its shareholders. No more than 100 shareholders, all of them individuals other than nonresident aliens, estates, or certain trusts and exempt organizations, and one class of stock. Files Form 1120-S must pay a shareholder who works in the business, for that work, before it makes non-wage distributions to them. A C corporationEntity typesC corporationA corporation taxed as a taxpayer in its own right: it files Form 1120 and pays 21% of its taxable income, and its shareholders are taxed again on what it pays them as dividends. Every corporation is a C corporation unless it elects S status's founder on payroll is an employee too, but the rule is the S corporation's.