QBI and no reasonable compensation or payroll at all

[ILLMAS]

How are you going to handle your S-corp clients that don't take a reasonable compensation  or don't pay themselves for QBI purposes?

I worked out three scenario:

Single, Taxable income $150,000, 0 unadjusted, non-SSB

Scenario 1

W-2 wages from S-corp: $50,000

K-1 profits: $100,000

QBI $20,000

Scenario 2

W-2 wages from S-corp: $0

K-1 profits: $150,000

QBI $30,000

Scenario 3

W-2 wages from S-corp: $100,000

K-1 profits: $50,000

QBI $10,000

From the three scenario, # 2 will have the best QBI, however we cannot play around with the numbers to see what gives the best result, from what I've been reading, there is a debate as to prepare the return based on what the client brings in, other are suggesting they will be declining returns with zero or unreasonable compensation, other are saying they are going to reduce the K-1 amount by reasonable wages*, and some are saying no wages or reasonable salary, prepare the return but no QBI.

*Reasonable wages

How much would someone in your field make?

How much would you like to get paid for what you do?

How much do you expect to receive from SS when you retire?

 

[Lee B]

The presenter at the OSCPA seminar I attended today said that he would reduce the QBI by the amount of what reasonable compensation should have been.

 

[Richcpaman]

ILL:

If a "new" client comes in, and presents Scenario #2, then you have to deal with the lack of compensation, and it has nothing to do with QBI.  The S/H has not taken a salary and should be taking something.

If it is an existing client, then you should have dealt with it in the past.  What other clients have this problem?

If the client is refusing to take a reasonable salary, then the whole QBI issue is moot.  You probably don't want them as a client.  They are going to cheat elsewhere as well, and make it all your fault when they get caught.

Rich