Offer your thoughts or opinion on the input financial query or topic using your financial background.

What is a reasonable salary for the owner and sole member of a small S-Corp?
The answer depends on this: If you had to hire someone to do what you are doing in the S-corp, what would you pay them?  If you are doing semi-unskilled work part-time, then $20k might be reasonable.  If you are a professional working full time, it's too low.  Don't forget that, in addition to "billable" work, you are also doing office tasks, such as invoicing and bookkeeping, that the IRS will also want to see you getting paid for. There was an important court ruling on this subject recently: Watson v. Commissioner.  Watson owned an S-Corp where he was the sole employee.  The S-Corp itself was a 25% owner in a very successful accounting firm that Watson worked through.  All of the revenue that Watson generated at the accounting firm was paid to the S-Corp, which then paid Watson through salary and distributions.  Watson was paying himself $24k a year in salary and taking over $175k a year in distributions.  For comparison, even first-year accountants at the firm were making more than $24k a year in salary.  The IRS determined that this salary amount was too low.  To determine an appropriate amount for Watson's salary, the IRS did a study of the salaries of peers in firms of the same size as the firm Watson was working with, taking into account that owners of firms earn a higher salary than non-owners.  The number that the IRS arrived at was $93k.  Watson was allowed to take the rest ($80k+ each year) as distributions. Again, this number was based on a study of the salaries of peers.  It was far short of the $200k+ that the S-Corp was pulling in from the accounting firm.  Clearly, Watson was paying himself far too low of a salary.  But even at this extreme example, where Watson's S-Corp was directly getting all of its revenue from one accounting firm in which Watson was an owner, the IRS still did not conclude that all of the revenue should have been salary and subject to payroll taxes. You should ask an accountant or attorney for advice.  They can help you determine an appropriate amount for your salary.  Don't be afraid of an audit, but make sure that you can defend your choices if you do get audited. If your choices are based on professional advice, that will help your case.  See these articles for more information: