The Business Owner’s Guide to Reasonable Compensation

November 2, 2025
Business owner using a calculator with cash and coins on the desk while writing notes, representing determining reasonable compensation.

If you own a business taxed as an S corporation, how you pay yourself matters.You can take money two ways: W-2 Payroll (reasonable compensation) Owner Distributions (profit) The IRS expects both. Your salary must be reasonable based on the work you do.Not too high.Not too low.Justifiable. Let’s walk through what that means. What “Reasonable Compensation”…

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