I understand that a pass-through has to pay shareholders that provide services a "reasonable salary".

What I don't understand if how that salary number will be determined by the IRS in an audit.

If the salary is within the range of what that person would get paid as an employee for those services, will the IRS care how much money goes to that person as shareholder distributions? I.e Would they compare it against a high distribution amount and say that person needs to get an increased salary?

Long read, but this could help.

https://www.thetaxadviser.com/issues/2011/aug/nitti-aug2011.html

0708aggie said:

---

Long read, but this could help.

https://www.thetaxadviser.com/issues/2011/aug/nitti-aug2011.html

---

That was exhaustive. Thanks.

Seems most of those cases were pretty egregious, but they don't seem to have taken the distribution amount into consideration for the salary. I'm sure it factored into the decision to audit though.

The amount of distributions is a separate question of fact from what a reasonable salary is.

Are guaranteed payments and salaries for owners any different?

Either way they're self-employed and factor into individuals' capital accounts (used later for basis).

The most common answer I get from CPAs is 50/50. They say it does depend on you business and you can be more liberal in the first few years.

I tell clients it is a function of revenue and profit. I normally don't exceed the ACA max though.

Guaranteed payments are for partners who provide services in a partnership.

I started out paying myself minimum wage. Then For a long Time I paid myself 40k per year. Now I make $50k.

Reasonable wage