S-CORP OWNERS · REASONABLE COMPENSATION Enrolled Agent

Give the IRS a salary number you can actually defend.

As an Enrolled Agent, Umair helps S-corp owners move from “my CPA said 50% of profits is fine” to a documented, data-driven compensation number that matches the work you really do in the business.

This page is for S-corp owners who already know an S-corp is right for them. If you’re still deciding on entity type, start with an advisory call instead so we can look at the whole picture.

Book a compensation study Talk it through first

Reasonable compensation study

Initial deep-dive: $575 · Annual update: $450

We map what you actually do in the business, benchmark it against IRS-friendly wage data, and deliver a written report plus a 1:1 review call with Umair.

Designed for S-corp owners who want receipts before an audit.

What this is

A reasonable compensation study is your backup plan if the IRS comes asking.

The IRS expects S-corp owners to pay themselves a “reasonable” wage for the work they perform. That number isn’t a guess, a rule-of-thumb, or “whatever your software suggests” — it’s based on facts, data, and how you actually spend your time.

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Role analysis. We break down the hats you wear (operations, sales, admin, management, technical work) and how many hours you spend in each.
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Wage benchmarking. Those tasks are mapped to third-party wage data for comparable roles in your region or industry.
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Documented methodology. We document how we got to the final recommendation so you’re not relying on “my CPA said it was fine” if the IRS asks questions.
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Implementation plan. We discuss how to transition from your current salary to the recommended range without blowing up your cash flow.

Who this is for: S-corp owners who are already filing as an S-corp (or have an S-corp election in place) and want a defendable salary number before the IRS or state ever calls.

Who should not buy this yet: If you’re still a sole proprietor, LLC taxed as a disregarded entity, or you aren’t sure whether an S-corp makes sense, start with an advisory call first. We’ll review whether an S-corp is right for you before you pay for a full compensation study.

Purchase options

Choose the level of support that matches where you are right now.

All options include Umair personally reviewing your situation — not a generic template or a mystery team overseas.

Most common starting point

Initial reasonable compensation study

$575 one-time

Best for first-time S-corp owners or those who’ve never had a formal compensation analysis.

Detailed role & time analysis across your main activities.
Benchmarking against IRS-friendly wage data sources.
Written report with recommended salary range.
Up to 30-minute review call with Umair to walk through results.

For returning clients

Annual update / tune-up

$450 per year

For businesses whose roles or profits have shifted since the last study and need fresh support in the file.

Review of changes in your role, profit, and headcount.
Updated wage benchmarking and salary range.
Short summary of what changed since last year.
Quick check that payroll & distributions still line up.

Deep dive bundle

Study + 60-minute tax strategy session

$895$670 bundle

Combines a full compensation study with a one-hour advisory call to talk through payroll, distributions, and your overall tax strategy.

Everything in the initial compensation study.
Extra 60-minute Zoom or in-office strategy session with Umair.
Space to ask broader S-corp questions (reasonable comp, officer health insurance, distributions, retirement planning, etc.).
Ideal if you’re cleaning up prior years or planning several years ahead.

Important: Please do not purchase a compensation study if you don’t currently have an S-corp election in place. Start with an advisory call so we can confirm whether an S-corp is even the right move before you spend money on a salary analysis.

Next steps

How to request your compensation study right now.

We’ll eventually embed a full form here. For now, you can still get the process started in a couple of minutes by emailing the information below.

Step 1 – Email your details

Send an email to [email protected] with the subject line Reasonable Compensation Study Request and include:

Your full name and best contact email / phone.
Business name, state of incorporation, and EIN (if available).
Whether you want: Initial Study, Annual Update, or the Study + Strategy Bundle.
Your current officer salary (if any) and approximate annual S-corp profit for the last 1–2 years.
A short paragraph describing what you do day-to-day in the business (sales, service delivery, admin, management, etc.).

Step 2 – We follow up with next steps

You’ll receive a reply confirming fit, timing, and payment details, plus a secure way to upload any payroll reports or prior-year tax returns we need to review.

Open email to request study Not sure yet? Book an advisory call

Before you rely on rules of thumb

“My CPA told me to take 50% of the profits” isn’t a defense.

The IRS audits both taxpayers and tax preparers. “Half of profits” might be a convenient shortcut, but it’s not written anywhere in the Internal Revenue Code or regulations.

For S-corp owners

Has your tax pro told you to “just take 50% of the profits”?

Many owners are told to pay themselves “about half” of S-corp profit as wages and take the rest as distributions. That shortcut feels simple, but courts look at your actual work, comparable wages, and the full facts and circumstances — not a percentage someone picked years ago.

In an exam, the IRS can reclassify distributions as wages and assess back Social Security and Medicare tax, penalties, and interest when it believes your compensation is unreasonably low.

Penalties your preparer can face

The IRS also penalizes preparers who push unreasonable positions.

If a preparer signs returns that understate tax based on an unreasonable position — like repeatedly using a very low “50% of profit” wage with no support — they can be hit with civil penalties under IRC §6694.

For an unreasonable position, §6694(a) starts at the greater of $1,000 or 50% of the preparer’s fee for that return. For willful or reckless conduct, §6694(b) jumps to the greater of $5,000 or 75% of the preparer’s income from the return — and multiple penalties can stack across years and clients.

For tax preparers & firms

Need backup on S-corp compensation before signing returns?

If you’re a tax preparer who doesn’t have time to build a full reasonable-compensation model for every S-corp client, you don’t have to guess. Umair regularly performs third-party comp studies and second-opinion reviews for other firms.

Independent comp reports you can attach to your workpapers.
Review of prior-year S-corp returns and payroll for exposure.
Plan to bring clients back into compliance over time.

Real-world examples

The IRS has already won many reasonable comp cases.

These tiles highlight a few S-corp cases where courts agreed with the IRS that owner salaries were too low for the work they actually performed.

Watson v. United States

CPA paid himself $24,000 salary on six-figure profits

David Watson, a CPA, ran his practice through an S-corp and paid himself only $24,000 in wages while taking well over $200,000 per year as “distributions.” The IRS reclassified much of those distributions as wages.

The court ultimately accepted an IRS expert’s analysis that roughly $91,000 per year was reasonable compensation and hit the S-corp with back payroll taxes and interest. The message: even professionals can’t hide behind low salaries.

Sean McAlary Ltd., Inc. v. Commissioner

Real-estate broker: $0 wages, $240,000 distributions

A California real-estate broker ran all his sales through an S-corp, reported about $231,000 of income, and took $240,000 out as distributions — but paid himself no wages and filed no payroll returns.

The Tax Court agreed with the IRS that this was not reasonable and determined a salary of around $83,200 was subject to employment tax for that year. Zero wages is almost never defensible.

Glass Blocks Unlimited, Inc. v. Commissioner

Even a low-profit S-corp had to pay wages

In Glass Blocks Unlimited, the S-corp treated payments to its owner as “loan repayments” and dividends. The Tax Court disagreed and held that the payments were really wages for services.

Recharacterizing the payments as wages pushed the company from a small profit into a loss, but the court still sided with the IRS. The takeaway: reasonable compensation can be required even when profits are thin.

These are just three of many cases where S-corp owners lost on reasonable compensation. A documented study doesn’t guarantee you’ll never be audited, but it gives you real support instead of relying on rules of thumb or hearsay.