# Reasonable compensation

> Reasonable compensation — The wages an S corporation must pay a shareholder who works in the business, for that work, before it makes non-wage distributions to them. A C corporation's founder on payroll is an employee too, but the rule is the S corporation's.

Source: https://lopifi.com/glossary/reasonable-compensation
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**What is reasonable compensation?** In accounting, reasonable compensation means the wages an S corporation must pay a shareholder who works in the business, for that work, before it makes non-wage distributions to them. A C corporation's founder on payroll is an employee too, but the rule is the S corporation's.

## Words this system refuses for it

- owner's draw
- dividend

- **Category:** Payroll
- **Specified in:** [Lexicon](https://lopifi.com/md/docs/domain/11-lexicon)
- **Related:** c-corporation, s-corporation