A shareholder who provides services to an S corporation cannot simply replace reasonable wages with distributions. The IRS can reclassify payments as wages when warranted.
Reasonable compensation depends on the work performed, responsibilities, and business facts. There is no universal percentage that establishes a safe salary for every owner.
Your next steps
- Document your duties and hours.
- Review comparable compensation information.
- Maintain payroll and distribution records separately.
General education, not individualized tax or legal advice. Illustrations use stated assumptions and do not promise a refund or tax saving.
Make this relevant to your situation.
ML Taxes & Accounting can review your income, records, and goals before you make a tax decision.
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