Free Tool

S-Corp Reasonable Compensation Calculator

The #1 IRS audit trigger for S-Corp owners is an unreasonably low salary. Get a defensible range by industry, region, and hours worked — plus audit-risk scoring for your current number.

Your situation

Industry / role

Region / cost of labor

Hours per week you work in the business

40 hrs

Net profit (before owner comp)

Your current (or planned) W-2 salary

Benchmarks are derived from BLS Occupational Employment Statistics (2024) adjusted for 2026 wage inflation. Not legal or tax advice — use as a starting point for a CPA conversation.

Audit risk: high

Moderate-to-high audit risk — salary is below the 30% profit floor or significantly below benchmark. Recommend increasing.

Recommended Salary

$105,000

Defensible range: $75,000 – $120,000

How we calculated this

Industry benchmark (adjusted)$75,000 – $155,000

30% of net profit floor$60,000

60% of net profit ceiling$120,000

Your salary as % of benchmark57%

Your salary as % of net profit30%

Ready to see your tax savings?

Run this salary through the S-Corp savings calculator

How to document your reasonable compensation

The IRS doesn't just look at the number — they look at whether you can defend it. Create a one-page memo for your tax file with:

Industry benchmark source: BLS OES, RCReports, Salary.com, or Glassdoor. Cite the specific occupation code and median figure.
Regional adjustment: note your metro and the cost-of-labor multiplier you applied.
Hours worked: specify weekly hours devoted to the business. If <40, scale down proportionally.
Duties performed: list the key functions (sales, ops, management, technical work). Justifies comp relative to a single-role employee.
Profit vs salary ratio: document salary as a % of profit. IRS-safe range is typically 30-60% for service businesses.
Annual review: re-run the analysis each year. Salary should adjust with business growth, not stay flat year after year.

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How to document your reasonable compensation

The IRS doesn't just look at the number — they look at whether you can defend it. Create a one-page memo for your tax file with:

Industry benchmark source: BLS OES, RCReports, Salary.com, or Glassdoor. Cite the specific occupation code and median figure.

Regional adjustment: note your metro and the cost-of-labor multiplier you applied.

Hours worked: specify weekly hours devoted to the business. If <40, scale down proportionally.

Duties performed: list the key functions (sales, ops, management, technical work). Justifies comp relative to a single-role employee.

Profit vs salary ratio: document salary as a % of profit. IRS-safe range is typically 30-60% for service businesses.

Annual review: re-run the analysis each year. Salary should adjust with business growth, not stay flat year after year.