S-Corp Reasonable Salary Calculator
The IRS requires S-Corp owners to pay themselves a "reasonable salary" before taking distributions. This calculator uses industry benchmarks to find your optimal salary.
S-Corp Reasonable Salary Calculator
Determine the optimal salary/distribution split for your S-Corp to minimize FICA taxes
Disclaimer: Reasonable salary is based on industry benchmarks. The IRS requires S-Corp owners to pay themselves a reasonable salary before taking distributions. Industry multipliers are estimates — actual reasonable compensation depends on duties, experience, location, and comparable salaries. Consult a tax professional for your specific situation.
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Frequently Asked Questions
How do I determine my S-Corp reasonable salary?+
The IRS looks at: your role, experience, industry standards, time devoted, and comparable salaries. Industry benchmarks: tech/consulting (50-60% of net income), creative (40-50%), general business (45-55%). Too low = audit risk. Too high = no SE tax savings.
What happens if my S-Corp salary is too low?+
The IRS can reclassify your distributions as wages, charging back payroll taxes plus penalties and interest. Cases like watson v. Commissioner set precedent — the salary must be "reasonable" for the services performed. Keep documentation of comparable salaries.
Can I change my S-Corp salary during the year?+
Yes. You can adjust salary based on business performance. Some owners pay a base salary and add bonuses in profitable quarters. Document your reasoning. Most CPAs recommend setting salary annually based on projected income.
How do I determine my S-Corp reasonable salary?
The IRS looks at: your role, experience, industry standards, time devoted, and comparable salaries. Industry benchmarks: tech/consulting (50-60% of net income), creative (40-50%), general business (45-55%). Too low = audit risk. Too high = no SE tax savings.
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