S Corporation Payroll Guidelines – Belk on Business – Episode 142

IRS requires owners of an entity taxed as an S Corporation to take a salary if the owner does anything more than contribute capital.

The IRS defines reasonable compensation as “the value that would ordinarily be paid for like services for like enterprises under like circumstances”

IRS recommends considering the following when setting an owner’s salary:

  • Duties performed

  • Volume of business handled

  • Character and amount of responsibility

  • Complexities of the business

  • Amount of time required

  • Cost of living in the locality

  • Ability and achievements of the individual performing the service

  • Pay compared with gross and net income of the business

  • Distributions to shareholders

  • History of salaries paid to other employees

  • Company policies regarding wages

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