06/02/2026
๐๐ก๐ ๐๐จ๐ค๐๐ง ๐๐๐ฅ๐๐ซ๐ฒ ๐๐ซ๐จ๐๐ฅ๐๐ฆ
A small salary alone does not make your S-Corp compliant.
The IRS is not just looking to see if you ran payroll.
They are looking at whether your compensation actually makes sense for the work you perform.
Example:
โข $40K salary
โข $150K, in distributions
That type of imbalance can raise questions during an audit.
Reasonable compensation should reflect:
โข Your role in the business
โข Time involvement
โข Experience and expertise
โข Industry benchmarks
If your salary appears too low compared to distributions, it may lead to:
โข IRS scrutiny
โข Penalties and interest
โข Payroll tax exposure
โข Back taxes
The goal is not simply paying yourself.
It is paying yourself correctly.