S Corporation Salary: Why Reasonable Compensation Matters
Reasonable compensation is facts-and-circumstances based
The IRS considers factors such as training and experience, duties, time and effort, comparable compensation and the source of the corporation’s gross receipts.
Distributions do not eliminate wage requirements
When a shareholder performs substantial services, simply labeling payments as distributions does not by itself determine tax treatment.
Document the compensation approach
A supportable process should reflect the actual work performed and relevant market information rather than an arbitrary salary selected only to reduce payroll tax.
Planning point: Tax outcomes depend on individual facts and circumstances. This is educational information, not individualized tax advice.
Primary source: IRS guidance
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Talk with Integrity about how these rules may apply to your situation.
Schedule a Consultation