Yup.  There’s a form for that, too.

Chef Louie was in a pickle.  It was tax season.  And those taxes weren’t going to prepare themselves.  Cash was tight.  Despondently, Chef Louie walked down the street with his hands in his empty pockets.  Then, Hark!  What was that?  He heard of a guy, Tax Man Stan, who was into barter.  No money changes hands?!  Could there be a way out?  Chef Louie’s spirits were rising like a double decker devil’s food cake.

They met.  Tax Man Stan’s ex-wife Nan had been needling him to provide something for their daughter Fran’s baby shower.  Tax Man Stan agreed to do Chef Louie’s $650 taxes, and Chef Louie agreed to cater $650 worth of pink and blue themed delicacies.  They smiled, shook hands, and got to work.

What does it really mean?  And why you should care!

If you’re in business, you’ve probably noticed the term “Reasonable Compensation” has been in tax news more than ever in recent months.  It’s not a new term, but it is receiving new attention by the IRS.

Who should care?

Anyone associated with a Subchapter S Corporation.  You might call yourself an owner or a shareholder or even a partner.   (I’m going to use ‘owner’ because it is short.)

Why?

Part II:  Why Michael Gerber deserves to have a statue on Main Street

After insulting the backbone of America by saying there is no such thing as a “born businessman,” Michael Gerber concedes that it is nonetheless possible to be a successful businessman.  It is his observation that a successful businessman is one who employs systems to get the work of his business accomplished, and much of the actual content of the E-Myth books is actually demonstrating this point.  Indeed, Mr. Gerber’s consulting business essentially entails helping folks develop their own systems.  While it is a shame that he had to take a nasty swing at entrepreneurs in general in order to get our attention, his focus on systems has been good for pretty much everyone.

Part I:  Why the book made me mad

A friend recommended I read Michael Gerber’s The E-Myth, and so I did.  The book has received great press over the years, in a sort of wow-I-never-thought-of-it-that-way bewilderment of praise.  While it cannot be denied Gerber put voice to a little-observed phenomenon, I believe the way he did it did a disservice to entrepreneurs, and people in general.

Essentially, Gerber’s E-thesis is, like leprechauns and the tooth fairy, there’s no such thing as a natural-born entrepreneur.  What he calls an ‘entrepreneur’ is really just an ordinary — albeit technically proficient — person who suddenly realizes he doesn’t like his boss and/or could do things better than his boss.  In that fit of pique, the ordinary person quits his job, sets up his own shop, and proceeds to fail.  Why does he fail?  Because despite being technically proficient, he doesn’t know how to run a business!

…when the Employer reimburses the Employee for health insurance costs

This is not a joke.  It is from IRS Notice 2013-54, in reference to a long-held practice whereby employers could simply reimburse employees for health insurance secured directly by the employees.  Prior to 2014, such an arrangement was an acceptable alternative for smaller employers for whom group coverage was impractical.  The employee secured the insurance and the employer either paid the premiums directly, or reimbursed the employee for the premiums.

The tax consequences were favorable.  The employer got a deduction just as if it were regular group health insurance, but the employee did not recognize income.  (A similarly beneficial arrangement was in place for S-Corp owners.)