The 2017 US tax reform act (the Act) has intertwined S corporation ‘reasonable compensation’ with the new Section 199A deduction in that the amount of compensation paid to S corporation shareholder-employees can impact the extent to which the Section 199A deduction is allowed. As a result, the IRS may increase its focus in both areas, especially in the context of smaller S corporations. In response, S corporations and their shareholder-employees may want to take an integrated approach to analysing reasonable compensation and the Section 199A deduction.
