What is a reasonable salary, and can I still take money out of my S-Corp?
Short answer
As an S-Corp owner who works in the business, you pay yourself a reasonable salary through payroll, and you can take the rest of the profit out as distributions, which aren't subject to self-employment tax.
Otavio Mayole, Co-founder, DeCypher FinancialsUpdated
Creators often worry that a salary means they can't touch their money. It doesn't. Your salary goes through payroll with taxes withheld. The rest of your profit stays in the business account, and you can take it out as distributions when you need it.
How we set a reasonable salary: there's no fixed IRS percentage. We look at what it would cost to hire someone to do your job, your hours, your industry and your profit.
- Too low draws IRS attention, because the savings come from paying less payroll tax.
- Too high wastes money on payroll tax you didn't need to pay. We've seen creators' salaries set far above what their numbers supported.
A few rules that keep distributions clean:
- Take distributions from the business account, not by paying personal bills from it.
- Keep track of your basis, which is roughly what you've put in plus profit, minus what you've taken out. Taking out more than your basis can create extra tax.
- Reimburse yourself for business costs like a home office through an accountable plan, not as random transfers.
On Creator, we set your salary, run payroll and handle quarterly payroll filings.