How to determine S Corporation reasonable salary

S Corporation shareholders often come up with a plethora of questions when deciding what to pay themselves and trying to figure out their S Corporation reasonable salary as owners. As tax advisors, we often find ourselves answering most of these questions, especially when it comes to determining ‘reasonable compensation’.

The instructions to Form 1120S, U.S. Income Tax Return for an S Corporation, state “distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.” Furthermore, the IRS states that “S… Continue reading →