Reasonable compensation cases do not establish a universal salary percentage. Courts examine the shareholder's services, comparable compensation, the corporation's income, and the facts behind distributions treated as wages.

Setting a reasonable salary for S-Corporation owners is one of the most critical tax issues these businesses face. Reasonable compensation is a recurring focus area in S-Corporation examinations because it directly affects employment tax reporting. Getting this wrong can lead to costly audits and penalties. This post breaks down what the IRS looks for, how to document your salary decisions, and why guessing a number can cause serious problems. IRS review of S-Corp salary docu