S corp reasonable salary, distributions, and basis, done right
Setting an S corp reasonable salary is the first step to keeping your payroll tax savings safe. An S corporation can cut payroll taxes. However, most S-corp problems come from four places: an unreasonable salary, distributions without basis, owner health insurance handled wrong, and personal expenses paid without a plan. This toolkit covers all four.
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S corporation owners, and LLC owners deciding whether to elect S-corp status.
How the toolkit supports an S corp reasonable salary
- Build a salary from the roles you actually perform and what each would cost to hire.
- Compare three salary levels side by side, and against a sole proprietorship.
- Track stock and loan basis so distributions stay tax-free and losses are deductible.
- Reimburse your home office, mileage, and phone tax-free under an accountable plan.
What’s included
- S-Corp Owner’s Workbook (Excel): reasonable salary worksheet, salary planner, basis tracker, and reimbursement log, with current-year payroll and retirement rates.
- S-Corp Owner’s Guide (PDF), including a year-end checklist.
- Sample Accountable Plan with an expense report form (PDF).
How it works
First, list your roles and the market pay for each. The worksheet then weights them into a salary you can document. Next, the planner shows payroll taxes, distributions, retirement room, and an estimated total tax for each option. Finally, update the basis tracker every year and hand it to your preparer.
Why it matters
The IRS expects working owners to take a reasonable salary before distributions. Low or missing salaries are a common audit issue. Learn more on the IRS page for S corporations. To plan the rest of your tax year, add our Tax Planning Playbook & Projection Workbook.
Want LNS to run your S-corp payroll and track basis? Work with us.
Format: Excel and PDF. Instant download. Requires Excel 2016 or newer (or Microsoft 365). Planning estimates only; have the sample plan reviewed by your attorney or tax advisor.