Tax Planning
The S corp question, answered with your numbers
The problem
Owners hear that an S corp saves tax, elect one, and then never revisit whether the compensation split is defensible or still optimal.
Why it matters
The savings come from the split between wages and distributions. Set it too aggressively and it is an audit exposure; too conservatively and the election is doing nothing.
How to know if you have this
- You are a sole proprietor or LLC with meaningful net profit
- You have an S election but no documented compensation analysis
- Owner pay has not changed as profit grew
- Multiple owners with unequal involvement
How Advisory Motion solves it
- 01Model the election against your actual profit, payroll and state situation
- 02Set a defensible reasonable compensation figure with documentation
- 03Coordinate payroll, distributions and estimated payments
- 04Revisit annually as profit changes
Illustrative example
The election was right; the split was not
An existing S corp had owner wages set years earlier at a much lower profit level. Correcting the split — up, in this case — reduced audit exposure while keeping most of the benefit intact.
Illustrative composite · not a client identification
Where this connects