S Corp: What salary should you take?
An S Corp election can be a powerful tax planning strategy for closely-held businesses as well as self-employed individuals. One of the requirements of an S Corp is that the owner must take a reasonable salary. As the business owner, how do you decide what the right salary is for yourself? In this blog, we go over the two most important considerations you need to take when deciding your salary.
Watch video below where we explain the considerations
The first consideration is that your salary must be reasonable
You might be tempted to take the least amount of salary to keep your employment taxes low. But remember, your salary must be reasonable as per the IRS rules. A reasonable salary means it must be appropriate, given the job description, your experience and other salaries, for comparable jobs in the area.
Secondly, your salary determines your retirement plan contributions
Your salary determines how much you’ll be able to put into retirement plans such as SEP IRA, solo 401K, 401K, profit-sharing plans, cash balance pension plans, etc. These retirement vehicles can be powerful tax planning tools in their own right. So to the extent you want to maximize your contributions, you also want to make sure your salary is high enough to accommodate the contributions.
How can you determine what salary to take?
If you’re wondering what your salary should be, a financial advisor can help you figure out the figure that satisfies all the requirements and also helps you maximize your tax savings.
If you would like to speak with us about establishing an S Corp or if you already have an S Corp and want to discuss ways to maximize tax savings, please book an intro call with us below:
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