The IRS legally requires employees be paid a reasonable salary. As an employee of your own company, Heard will help you to determine said salary.
Heard will help you to determine a salary by:
- Determine your net income before any salary amounts are paid.
- Determine a salary that makes up 45-55% of net income.
*This is based on the IRS' Valuation Analysis Field guide by industry. The average percentage of salary to net income in the health care industry is 59%. This is fairly high for a small business, and we are comfortable applying the set range above (45-55%).
Depending on when you become an S corporation during the year, you may need to run catch-up payroll. Heard can help you to initiate an off-cycle payroll in order to catch you up for the quarter you are setting up in.
For more about setting a reasonable salary, visit our resources on Becoming an S corporation as a sole proprietor and as an LLC or PLLC.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.