How Much Should I Pay Myself as an S Corp Owner?

How Much Should I Pay Myself as an S Corp Owner?

podcast tax Jan 24, 2023

The salary requirement is the most ambiguous part of S Corp compliance. The IRS says you have to pay yourself a reasonable salary but they don't say how much that is or how to figure it out! But pay too little, and you'll find yourself in trouble.

I'm walking you through the seven-step process we use with clients to determine their reasonable salary.

 

"The better your documentation, the higher your grip strength, meaning the more documentation you have proving that the salary you want is reasonable, then the more strength you have in that tug of war game to drag the IRS over to your side."

 

In this episode, you will learn the following:

  1. Uncover how to determine a reasonable salary for your S corporation.
  2. Find out what seven factors to consider when calculating a reasonable salary for your business.
  3. Discover how to save money on taxes with the S Corp tax election.

 

What you'll hear in this episode:

  • What is the type of documentation you need?
  • How much are you in the owner vs. operator space?
  • What to do if you can’t afford to pay the salary.

 

Here are some brief snippets from this episode:

[00:00:50]
A lot of S Corporation owners are surprised to find out they have to pay themselves a salary. IRS and Congress don't give as much guidance on what a reasonable salary actually means. This is always an area of scrutiny. The better your documentation, the higher your grip strength.


[00:03:22]
We do a reasonable compensation analysis, and we ask a series of questions about the business owners background and how they work to determine a bit of an estimate on their salary. Here are seven things that we consider the list of seven.


[00:04:21]
For your salary, what do you do in the business versus on the business? How many hours do you work? What is your highest paid employee making? Lastly, look at cash flow and profitability of the business.


[00:11:03]
You could be missing out on massive tax savings that you get from making the escort tax election. I put together a completely free calculator and questionnaire to see if this tax election may be a good fit for your business. Click on the link in the Show Notes to find out more and compute your estimated tax savings.

 

Related episodes:

196. How to Handle Suspicious Tax Pros

201. How to Deduct Medical Costs and Self-Employed Health Insurance

204. Live Q&A: Will Anyone Actually Buy My Offer?

 

Resources:

Find everything you need at www.keepwhatyouearn.com! https://www.keepwhatyouearn.com/

Questions about this episode? Text me!: https://my.community.com/shannonweinsteincpa

Chat about this episode in the Keep What You Earn Community – http://keepwhatyouearn.circle.so

Hire us: https://www.fitnancialsolutions.com/accounting

See how much you can save with an S Corp: https://www.keepwhatyouearn.com/keep-what-you-earn-s-corp-calculator

Find me on IG @shannonkweinstein

Meet me face-to-face on YouTube: https://www.youtube.com/channel/UCMlIuZsrllp1Uc_MlhriLvQ

Featured in Yahoo Finance! Read more here: https://finance.yahoo.com/news/10-bookkeepers-accountants-watch-2021-113800161.html

 

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.

 

Key Words:
salary, s corp, reasonable salary, business, pay, tax savings, business owner, cpas, analysis, irs, clients, accountants, making, tax, employee, roles, strategy, plot points, year