If you are the officer of the S-corporation working substantially in the business then you should draw a reasonable salary. You do this by treating yourself as an employee and running your wages through payroll, withholding payroll taxes, etc.

You can learn more about that at https://gethelptax.com/how-to-pay-yourself-from-an-s-corp/

In an S-Corporation, all connected parties are basically either employees or directors (board). I would treat yourself as an employee and set a reasonable salary that you can start paying yourself through your S-Corp. You can also control where the money in the organization goes (saved for further use as retained earnings or paid out in bonuses). I would ensure that your salary is on the lower side especially if you want to bring on investors in the future as they will likely spend extra time around the employee and director compensation piece as an area of interest.

Your S Corp is technically another person for legal and tax purposes. All money goes through the Corp first. Then it pays you. So the Corp would send you a check or Zelle deposit (more realistically for modern small business) and now you’re paid. NEVER use your business debit or checks to pay for personal things unless you can tie them to the business. This puts you at risk of liability. A court could “pierce the veil” of your Corp and say, “hey! That fictional legal person is really you, why I ought uh!!!” Now you’re screwed. So don’t do that. In fact, if you want to stay on the safe side, if it can be seen as personal, pay for it with your personal card. I know that wasn’t part of your question but it’s important.

This is tricky.

Pay yourself to low + IRS will... assign you a salary, decrease your dividend income, charge you tax + penalty on the difference.

Pay yourself to high + you overpay tax, as dividend tax rate + income tax rate will likely be very different under Joe Joe.

No tax professional can answer you about this, as it's all fantasy in whatever IRS Auditor you get... if you're audited.

Best to just guess at this yourself, based on an industry salary survey for your niche + position you're assuming.

Be careful here.

Consider a single employee S Corp for software development, where you serve as both the President + write all the code.

This is actually 2x discrete jobs, so be sure your salary reflects both of your jobs... else your friendly Auditor will say... "Well now, you've been working 2x jobs + only paid yourself for 1x, so here's your new tax + penalty bill."

S-Corporation's must pay their officer's reasonable salaries based on the work provided to the company. So this depends on what services are provided, what the company does, where the company and/or officer-employee are located, what gross and net income are expected and a few more points to determine the best salary for your company. This is completely individualized and needs to be treated as realistically as possible to hold up to the IRS in the event of an unlikely audit.

My job, as a small business tax consultant and strategist, is to prepare you and educate you while maximizing your tax savings, maximizing all legal deductions, providing you with tax plans for your business, and more. While simultaneously ensuring that you are following all guidelines and never have to worry about an audit, but can defend yourself at all stops should you ever undergo one.

Please feel free to reach out for a call should you want to develop an individualized plan for your salary and run some tax planning your small business!

Get a good CPA, now.

They will help you figure out the right amount to pay as salary and what you can take out as a distribution. Don't hold me to this but I was always told it's like 1/3 salary, 2/3 distribution.

Ex: $100,000 / year
$33,333 salary (pay full payroll taxes, fed / state taxes)
$66,667 distribution (no payroll taxes, still pay fed / state taxes)

Therefore, cutting out self employment tax on your distributions.

But more importantly, if you're asking a question like this, you are not prepared for the time consuming and confusing world of S Corp taxes. Please get a CPA now to help you, S Corp taxes are overwhelming.

My experience:
I thought I could handle self-filing taxes with an S Corp and I was wrong. Wasted a lot of time using Turbotax Business edition only to file an amended return the next year because I screwed up. I also failed to pay some other random corporate tax and got a penalty I was able to get waived.

A decent CPA will cost you $1,200 - $1,500 a year to:
- give you peace of mind (don't undervalue this)
- provide monthly advising
- get your W2s created properly
- prep / file corporate taxes (like the 1120S which is big)
- handle payroll processing (pay your payroll taxes)
- provide estimated tax payment amounts for fed / state taxes (you can pay these online in most states)

The cost of self-filing for one year:
- Turbotax Business = $200 (maybe a little more with add-ons)
- Patriot Software = $240
- Time = probably 24 hours or more on payroll, taxes
- Stress = a lot

So you save like $1,000 doing it yourself but open yourself up to a lot more stress, time and possibly audits.

Also, you may not be thinking of it now, but in the future if you need to get a loan, like say for a mortgage, a CPA can increase your chances of making this happen. Business owners have a harder time getting loans like this because you're considered risky / self-employed. A CPA can legitimize you and help translate your business taxes / income / profit loss, etc into loan underwriter speak. Just went through this and wouldn't have gotten the mortgage without my CPA.

Get a CPA you can trust to handle this. For me, this was a smaller town, smart guy. I tried working with a bigger firm and it just didn't work for me. Good luck.

Put simply, when your business is an S Corp, you become its employee for tax purposes. Everyone wants to save money when it comes to taxes, so it should come as no surprise that a lot of freelancers turn to S Corps when they are deciding between different business entities. With an S Corp, the larger your shareholder distribution, the less payroll tax you will pay on your business profits. It is up to you to decide how much employee salary to pay yourself. But it is also important to consider how the IRS would see things. Keep these in mind as think through your reasonable salary. Also, the IRS states that the key to establishing reasonable compensation is determining what the shareholder-employee does for the S Corp. After examining all the circumstances, the IRS establishes a range of reasonable salaries, from low to high. In one case, the IRS concluded that a reasonable salary for an Arkansas certified public accountant was $45,000-49,000.
You can read more here: https://www.collective.com/blog/money-management/freelancers-guide-to-paying-yourself-a-salary-from-an-s-corporation/
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath