Posted by u/confused_by_the_split
How do I pay myself as an S-corp owner?
Answered by Ask a Shop Owner ·
S-corp, profit $220k. How much salary vs distribution?
u/askashopowner Owner-operator advisor
Top answer
The IRS rule is 'reasonable compensation' for the work you do. For most working owner-operators, that is 40% to 60% of net profit, or the market rate to hire someone to do your job, whichever is higher. On $220k, a $90k to $110k W-2 salary is defensible in most trades.
The rest comes out as distributions, no self-employment tax. That is the whole point of the election.
Document the salary decision with your CPA in writing every year. Reference market comp data (BLS, Salary.com, trade association surveys). If you get audited, that paper trail is the difference between a clean audit and a big bill.
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