POV: You have a new SCorp Client.

🚨 S-Corp owners: You cannot pay yourself only through distributions. If you actively work in your S-Corp, the IRS generally requires you to pay yourself reasonable compensation through W-2 payroll before taking shareholder distributions. Why does this matter? Your salary is subject to payroll taxes. Distributions generally are not. So, if you take little or no salary while pulling thousands of dollars from the business, it can look like you’re avoiding employment taxes—and that’s a major audit red flag. 🚩 “Reasonable” doesn’t mean choosing a random number. Your compensation should reflect: ✅ The work you perform ✅ Your experience and responsibilities ✅ The hours you work ✅ What similar businesses pay for comparable services ✅ Your company’s financial performance The S-Corp tax strategy is not about eliminating payroll taxes. It’s about paying yourself a defensible salary and potentially taking the remaining eligible profit as distributions. Already operating as an S-Corp but unsure whether your salary is reasonable? Don’t wait until the IRS asks. 📌 Save this post for your next payroll review. 📤 Share it with an S-Corp owner who needs to know this. 👉🏻 Follow me for practical S-Corp and tax-planning strategies. This content is for educational purposes and is not individualized tax advice. #SCorp #SCorpTaxes #TaxPlanning #ReasonableCompensation #Payroll