S-Corp Reasonable Compensation Calculator
Calculate your defensible W-2 salary versus distribution split. Maximize self-employment tax savings while remaining compliant with IRS guidelines.
S-Corp Reasonable Compensation & FICA Tax Savings Calculator
Calculate your optimal W-2 salary vs distribution split to maximize 15.3% self-employment tax savings while remaining audit-defensible.
Gross receipts minus business operating expenses.
The Balance Between Tax Savings and IRS Compliance
Forming an S-Corporation or making an S-Corp tax election for your LLC is one of the most effective strategies for reducing self-employment taxes. However, setting your salary too low is one of the most common red flags for an IRS audit.
Key Features
IRS Audit Risk Scoring
Evaluates your proposed salary-to-distribution ratio against historical IRS examination guidelines.
Social Security Wage Base Cap Integration
Accurately applies the $176,100 FICA wage ceiling for high-earning small business owners.
Net Cash Comparison vs Sole Proprietorship
Calculates the exact thousands of dollars saved annually compared to Schedule C self-employment taxes.
Common Use Cases
- ✓LLC Owners Electing S-Corp Status
Determine if your business profits are high enough (typically >$60k-$80k) to justify S-Corp payroll compliance costs.
- ✓Consultants, Doctors & Freelancers
Establish a defendable replacement salary based on market rates and duties performed.
Frequently Asked Questions
What is 'Reasonable Compensation' for an S-Corp?
Under IRS rules, an S-Corporation shareholder-employee must be paid 'reasonable compensation' via W-2 wages before any non-wage shareholder distributions can be made. The salary must reflect fair market value for the services the owner provides.
How does an S-Corp save on self-employment taxes?
Sole proprietors pay 15.3% self-employment tax (Social Security + Medicare) on 100% of their net profit. With an S-Corp, you only pay FICA taxes on your W-2 salary; the remaining profit extracted as distributions is exempt from the 15.3% tax.
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