S-corp wages: what “reasonable compensation” actually means
Distributions are not a loophole. Here is how we think about payroll for a closely held S-corp in Louisiana.
An S-corp does not let you skip payroll. The IRS expects shareholder-employees to take reasonable wages before distributions.
What is reasonable depends on the work you actually do, comparable pay in the market, and how much of the profit is return on capital versus labor. There is no magic percentage that works for every shop in Caldwell Parish.
We set wages in the context of payroll, estimated taxes, and how you take cash out of the company — not as a one-time election in January that nobody revisits.