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As an S Corp owner, the salary you pay yourself is not a number you get to pick freely.
Pay too little and the IRS can recharacterize your distributions as wages and bill the payroll tax you skipped, with penalties.
Pay too much and you hand back the savings that made the S Corp worth it. The job is finding the figure that is both defensible and efficient.
The IRS says payments to a shareholder who provides services must be treated as wages to the extent they are reasonable compensation for that work. An officer who does more than minor work for the company is an employee, and the company owes employment taxes on that pay. The distributions you take on top are fine, but only after the salary is real.
There is no fixed percentage in the law. The IRS weighs the facts, and the more the company's income traces back to your personal work, the higher the salary needs to be.
Your duties, hours, and responsibility in the business.
Your training, experience, and what comparable roles pay.
What the company pays non-owner staff for similar work.
How much of the company's revenue comes from your work versus equipment, capital, and other employees.
A common move is to pay a small salary and run most of the profit out as distributions. It does not survive scrutiny. In one well-known case, a CPA paid himself a $24,000 salary while taking far larger distributions. The courts treated a large share of those distributions as wages, and the back employment tax followed.
Calling a payment a distribution does not make it one if it was really pay for your work. When the salary is set too low, the IRS can adjust both the company and the owner's returns to move that money back into wages.
We document what you actually do, the hours, and where the company's income comes from, because that is what a reasonable figure is built on.
We compare against real compensation data for your role, industry, and region, so the number has support behind it rather than a round guess.
We keep the reasoning on file, so if the salary is ever questioned, the answer is already written down.
Your S Corp reasonable compensation figure interacts with more than payroll. It changes:
Because we work your business and personal returns together, the number we set accounts for all of that, not just the wage line. A payroll service that only knows the salary cannot do that.
Owners come to us either to set this from the start or to fix a number they suspect is too aggressive.
If you have a tax question, whatever the least appealing answer would be, that's probably the right answer.
Cost depends on whether we are setting compensation for one owner or several, how much benchmarking your role needs, and whether we are also handling payroll and the S Corp return. We quote after a short look at your role and the business.
If you cannot explain the salary in one sentence tied to your actual role, it is the kind of number the IRS reclassifies.
You should not have to guess at a number the IRS gets to second-guess. We set one you can defend in a sentence, and keep the support on file so a question later is a quick answer, not a scramble.
Tell us your role, your hours, and roughly what the business earns, and we will set a salary that holds up and leaves the distribution intact.
