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Reasonable salary ???? S- corp

D.D.Machine

Stainless
Joined
Dec 10, 2003
Location
poulsbo, wa, usa
I am trying to get a feel for what a "reasonable salary" would be for a small one man shop .. about 90% of the work would be button pusher or light assembly and boxing ,,, Vary little time is spent in any kinda skilled job ...
 
Depends on how good your accountant is if you get audited. Maybe $15/hr? I'm taking this to mean you will take the rest of the profits as disbursements at a lower tax rate, correct?
 
my accountant told me this year to take 3000.00 a month in salary and the rest in dispursement but it also depend on how much money your business is making if your pulling in 8 grand a month in disbursement you might need to adjust your amount.
 
Figure an hourly rate and keep track of hours worked. When it gets slow I don't log many hours. I own most everything personally and lease it to the business, leaves far less for disbursements.
 
The IRS looks at the "reasonable salary" thing in comparison to distributions (dividends) an owner of an S-Corp (or LLC) takes.

Salary is subject to Social Security and Medicare withholding ("payroll taxes"), and with company matching it comes to 15.3%.

Distributions/dividends are not subject to these payroll taxes...only federal and state income taxes.

So, the IRS doesn't want employee owners of an S-Corp/LLC taking a disproportionate amount of distributions versus salary, as they can actually consider it SS/Med tax evasion!

A good accountant can clue you in on what is an acceptable ratio of salary to distributions, but common sense goes a long way here. For example, taking $50k in distributions and only $25k in salary for several years in a row could get you on their radar...I would think?!

So, in summary, a "reasonable" salary can be anything you decide, the government can't tell you how much to pay yourself.

But, if you take more than a "reasonable" amount (say 1/3??) of your pay in distributions, (especially in multiple years), the IRS can go back and declare the "excessive" distributions as normal salary, and bill you for the SS/Med, fines, and late fees.

What ultimately constitutes "excessive distributions" by the IRS is up to them...I reckon...??
 
But, if you take more than a reasonable amount (say 1/3) of your pay in distributions, (especially in multiple years), the IRS can go back and declare the "excessive" distributions as normal salary, and bill you for the SS/Med, fines, and late fees.

Don't forget interest!
 
I am trying to get a feel for what a "reasonable salary" would be for a small one man shop .. about 90% of the work would be button pusher or light assembly and boxing ,,, Vary little time is spent in any kinda skilled job ...

Look at it another way. What would you expect or want if you were applying for the job? Also only you know what you mean by "kinda skilled job".

You seem to be looking for someone just a bit better than average around your area so think "a bit better than average" more than "feel" re wage. "Feel" to me sounds more like "What's the least I can get away with". Good and reliable are usually employed.
 
Look at it another way. What would you expect or want if you were applying for the job? Also only you know what you mean by "kinda skilled job".

You seem to be looking for someone just a bit better than average around your area so think "a bit better than average" more than "feel" re wage. "Feel" to me sounds more like "What's the least I can get away with". Good and reliable are usually employed.

This has absolutely nothing to do with finding an employee. He's a one person shop. This is strictly how to categorize certain income that he already has for taxation purposes.

As CNCToolcat said, our government has different levels of taxation for salary income for individuals and shareholder distribution income for corporations. For big corporations with active employees, and non active shareholders, the difference between the two is simple. For small outfits where the shareholders are also employees doing day to day work, it's a gray area regarding what percentage of his income the person should claim as salary, and what percentage as distributions.

If you claim too much as distributions compared to salary, you get penalized for gaming the system. Claim too much as salary, and you overpay taxes. Of course, the entity that will penalize you doesn't actually have a clear and concise method of calculation, which leads to questions like this thread.
 
This has absolutely nothing to do with finding an employee. He's a one person shop. This is strictly how to categorize certain income that he already has for taxation purposes.

I didn't get that from the OP.

"I am trying to get a feel for what a "reasonable salary" would be for a small one man shop .. about 90% of the work would be button pusher or light assembly and boxing ,,, Vary little time is spent in any kinda skilled job ... "

I didn't see taxes etc. mentioned. To me it was about a "reasonable" wage for doing certain tasks. I might be wrong but I might also be right.

Two separate issues. Finding someone for the job and the other probably best to discuss with his accountant.
 
I didn't get that from the OP.

"I am trying to get a feel for what a "reasonable salary" would be for a small one man shop .. about 90% of the work would be button pusher or light assembly and boxing ,,, Vary little time is spent in any kinda skilled job ... "

I didn't see taxes etc. mentioned. To me it was about a "reasonable" wage for doing certain tasks. I might be wrong but I might also be right.

Two separate issues. Finding someone for the job and the other probably best to discuss with his accountant.

I liked it much better when I didn't have to read your ramblings.

This is strictly an issue with the I.R.S. of the U.S.A.

Please stay inside your "meteorology" sub forum, torturing small minions....
 
I liked it much better when I didn't have to read your ramblings.

This is strictly an issue with the I.R.S. of the U.S.A.

Please stay inside your "meteorology" sub forum, torturing small minions....

Kinda personal :)

Be nice when we hear from the OP. As far as "reading my ramblings" go you constantly comment my posts negatively (like you're doing here) and give "likes" to those like yourself who do so, so obviously, as you're not being forced to read what I post, it must be your "good nature". If you'd kept quiet you wouldn't have to read this as I'd already said what I had to say.
 
Talk to your accountant,
I'm told this number for a 1 to 10 man shop is around 200K per year and that at half a million you have certainly pushed the boundaries and that under 100 you are way inside the asking questions.
Bob
 
I liked it much better when I didn't have to read your ramblings.

This is strictly an issue with the I.R.S. of the U.S.A.

Please stay inside your "meteorology" sub forum, torturing small minions....

I thought this was him hiring his daughter to package the stuff he makes? Is S corp strictly a IRS thing or is that term used in other countries as well?
Bill D.
 
...Is S corp strictly a IRS thing or is that term used in other countries as well?
Bill D.
S Corp gets it's name from the section of the IRS code that applies. So yes, it's a US thing.

"Reasonable salary" is an IRS rule- I assume the OP is looking to determine how much income he has to take as salary vs. dividends.
 
I agree with Gordon, regardless of his address.

"Vary little time is spent in any kinda skilled job ... "

I thought he was looking for the minimum above minimum wage to pay a part-time school-boy - probably 'under the table.'
 
I didn't get that from the OP.

"I am trying to get a feel for what a "reasonable salary" would be for a small one man shop .. about 90% of the work would be button pusher or light assembly and boxing ,,, Vary little time is spent in any kinda skilled job ... "

I didn't see taxes etc. mentioned. To me it was about a "reasonable" wage for doing certain tasks. I might be wrong but I might also be right.

Two separate issues. Finding someone for the job and the other probably best to discuss with his accountant.

I agree with Gordon, regardless of his address.

"Vary little time is spent in any kinda skilled job ... "

I thought he was looking for the minimum above minimum wage to pay a part-time school-boy - probably 'under the table.'

You guys should work on your reading comprehension. Maybe you missed the thread title?
If you have any experience with shop ownership, combine "S-corp" "one-man" and "reasonable salary", add it all up, it is obvious where D is going with this.
The term the I.R.S. will use for reasonable salary is reasonable compensation. Toolcat Greg understood it just fine. And, hit the nail on the head.
 
Perhaps the OP could chime in and put us out of our misery. It sounds like a minimum-wage job even if he is making a million dollars a year.
 
Perhaps the OP could chime in and put us out of our misery. It sounds like a minimum-wage job even if he is making a million dollars a year.

Can you not "read between the lines"?
D.D. owns his own shop. That is why he posted the question in this sub-forum shop management and owner issues.

It seems a few people with zero experience relating to his question are chiming in with irrelevant answers because they did not understand his question.
Had they ever been in that situation? They would have understood the question just fine.

I personally knew exactly where he was going with it before I even opened the thread after only reading the thread title.

Bye-the-way, D.D., make sure you pay yourself enough. You do not want audited!
 
It's not so much pay yourself enough as much as do not send up a red flag! Without the red flag your not going to get audited.
 








 
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