Put simply, when your business is an S Corp, you become its employee for tax purposes. Everyone wants to save money when it comes to taxes, so it should come as no surprise that a lot of freelancers turn to S Corps when they are deciding between different business entities. With an S Corp, the larger your shareholder distribution, the less payroll tax you will pay on your business profits. It is up to you to decide how much employee salary to pay yourself. But it is also important to consider how the IRS would see things. Keep these in mind as think through your reasonable salary. Also, the IRS states that the key to establishing reasonable compensation is determining what the shareholder-employee does for the S Corp. After examining all the circumstances, the IRS establishes a range of reasonable salaries, from low to high. In one case, the IRS concluded that a reasonable salary for an Arkansas certified public accountant was $45,000-49,000.
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Answered a year ago

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