Determining the Appropriate Salary for an S Corp Owner

Determining the Appropriate Salary for an S Corp Owner

podcast secure - tax minimization Feb 01, 2024

Are you an S corporation owner? Have you found yourself bewildered by the concept of paying yourself a salary? In this episode of "Keep What You Earn," Shannon sheds light on the often murky waters of determining the appropriate salary for S corp owners. She provides invaluable insights and strategies for S corporation compliance, emphasizing the importance of understanding and justifying a reasonable salary.

Navigating the complexity of S corporation compliance, Shannon delves into the ambiguity surrounding the determination of a reasonable salary, highlighting how the IRS and Congress provide limited guidance on this crucial aspect. The absence of set rules can leave S corp owners feeling adrift, uncertain of how to establish an appropriate salary for themselves.

Shannon presents a structured method for computing a reasonable salary, underlining the significance of robust documentation to support one's chosen salary. Stressing the implications of IRS scrutiny in the event of an audit, she emphasizes the need for meticulous record-keeping and a solid rationale behind the determined salary. By equipping listeners with the knowledge and approach to articulate and defend their chosen salary, Shannon empowers S corp owners to navigate the nuanced terrain of IRS compliance with confidence.

To support S corp owners in determining a reasonable salary, Shannon outlines seven key factors to consider:

1. Location: Assessing the cost of living in the owner's area.

2. Education and background: Evaluating the owner's expertise, qualifications, and experience.

3. Work in the business vs. on the business: Distinguishing between operational and strategic roles.

4. Hours worked: Calculating the time commitment to the business.

5. Employee compensation: Comparing the owner's workload and compensation to that of employees.

6. Postings of similar jobs: Researching salaries for comparable roles in the area.

7. Cash flow and profitability of the business: Analyzing the financial viability of the determined salary.

A standout aspect of Shannon's approach is her recommendation to regularly review and update the reasonable salary analysis. By conducting this assessment at least twice a year, S corp owners can ensure that their salary aligns with their changing roles within the business and the financial health of the company.

Furthermore, Shannon offers a glimpse into the S corp success plan that includes comprehensive support for S corp owners. From setting up a reasonable salary to managing payroll through a preferred provider, the plan encompasses essential elements to aid S corp owners in navigating compliance and financial management with ease.

The podcast episode also showcases how Shannon's unique approach to S corp compliance sets her apart. Unlike traditional accounting practices that may provide minimal guidance, Shannon's methodology prioritizes thorough analysis and support to ensure that S corp owners can confidently navigate the complexities of determining a reasonable salary.

In conclusion, Shannon emphasizes the importance of seeking professional guidance in managing S corp compliance. By enrolling in the S corp success plan and leveraging the expertise of professionals, S corp owners can not only streamline their compliance processes but also gain unparalleled support in managing their financial obligations effectively.

For aspiring and existing S corp owners, this episode serves as a beacon of clarity in a landscape often clouded with uncertainty. By embracing Shannon's structured approach and seeking assistance where needed, S corp owners can confidently navigate the maze of determining a reasonable salary, ensuring compliance and financial stability in their entrepreneurial journey.

What you'll hear in this episode:

04:28 Defining salary based on business involvement and role.
07:29 Analyze salary to maintain business cash flow.

If you like this episode, check out:

How to Stop Feeling Unprepared For Tax Time

Harness the Benefits of an Accountable Plan in Your Business

Minimizing Tax Season Anxiety with Three Simple Steps


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The information contained in this podcast is intended for educational purposes only and is not individual tax advice. Please consult a qualified professional before implementing anything you learn.