What counts as a reasonable salary for an S corp owner?
Short answer: Roughly what you would have to pay someone else to do your job. Too low invites IRS scrutiny; too high wastes the S corp benefit.
The IRS expects S corp owners who work in the business to take wages before taking distributions. Reasonable salary is roughly what the business would pay an outside person for the same work.
Factors the IRS looks at include your duties, hours, training and experience, what similar businesses pay, and how much the business earns.
Taking no salary while taking large distributions is a common audit trigger and can lead to back payroll tax and penalties. Setting a defensible salary and documenting how you arrived at it is part of our S corp setup.
General information from Davis Schuler & Associates, LLC, not advice for your situation. Tax rules and thresholds change; confirm the current rules before acting.
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