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Paying Yourself Right: Owner Compensation, Reasonable Salary, and Add-Backs
Week 3 of 6 in our series: How to Maximize Your Company for Valuation and Tax Optimization Without One Hurting the Other.
Most owners I meet set their own salary once, years ago, usually with one goal: keep payroll tax low. Then they forget about it.
That number matters far more than it looks. The IRS reads it as the test of whether your distributions are really disguised wages. A buyer reads it as the first line it will rewrite before it calculates your price. This week is about choosing one salary that satisfies both, so neither the IRS nor the buyer surprises you.
In this short video, I explain how we have set up professional fighters, who are paid as contractors: an LLC taxed as an S corporation that pays the owner a reasonable salary, with the rest flowing through as profit. Swap the octagon for an operatory or an exam room and it is the same structure most doctor-owners use. The question this week is what that salary does on the day you sell.
Why the S Corporation Salary Saves Tax
When you own an S corporation, the company’s profit passes through to your personal return (§1366). The IRS has…
