THE WORKING GLOSSARY
Start with the vocabulary.
Short definitions to make the guides easier to use. These are orientation notes, not complete statements of tax or legal rules.
- Reasonable compensation
- Pay for services that reflects the facts and circumstances. An S corporation owner cannot use distributions as a substitute for appropriate wages for services.
- Distribution
- A transfer from a business to its owners. Its tax treatment depends on the entity, basis, earnings history, and other facts.
- Accountable plan
- A reimbursement arrangement with business connection, substantiation, and return-of-excess requirements.
- An owner's tax investment used in determining matters such as loss limitations and distribution treatment; it is not simply the bank balance.
- Payroll withholding
- Amounts withheld from wages and remitted under applicable payroll rules. Withholding does not necessarily equal the owner's final tax.
- Owner draw
- A bookkeeping description of owner withdrawals that does not by itself establish tax treatment.