What is a reasonable salary for a single-member LLC owner filing as an S-corp in data analytics?
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Does anyone have guidance on 'reasonable salary' for me, owner of a single member LLC, filing as an s-corp that does data analytics?
My accountant has helped me set everything up, has said he 'doesnt do salary recommendations', so I basically have to give him a number. Online I read about '50-50', '60-40', or 'dont have payroll go below 40%'
Initially, I was doing $50K payroll on $120K total income (payroll + owner distribution)
I am now wanting to pay myself more so I'm proposing to bump it up to $80K payroll on $150K total income (payroll + owner distributions)
Just wanted to see if this passes the smell test and if there's someone I can call for like a quick consultation to give me peace of mind on the numbers (since my accountant wont do this)
In terms of 'reasonable salary' If I applied as a 'data analyst' that's like $80K/year, if I went back to working at a large tech company as a mid level manager, that could be $200k+ (but if I used that number, then that wouldn't yield any real advantage to using the scorp)
Hello! My name is Dolan and thank you so much for contacting me! I just had a few quick questions for you: Where have you checked already to determine your reasonable salary basis? Have you looked online?
On sites like ziprecruiter it says average salary for a data analyst is $76K https://www.ziprecruiter.com/Salaries/Data-Analyst-Salary-in-Charleston,SC However, I was reading online that the 'market rate' could actually be compared to other early stage startup founders, which is commonly $80K Carta’s H2 2023 Startup Compensation Report shows similar data, with founders at pre-seed and seed-stage companies taking $45K–$80K in salary. https://carta.com/data/startup-compensation-h2-2023
Got it. Was there any other facts you'd like to add before I answered your question?
no that's it
Ok got it. So first, the most important thing is not to act as if there is a specific, black and white, you're screwed if you mess it up, you must get it perfect, rule. When it comes to “reasonable salary” for an S-corp owner, the IRS doesn’t give a hard rule, but they want it to reflect what someone else would be paid to do your job. You already nailed it by researching market rates. If a full-time data analyst in Charleston is making around $76K, and early startup founders typically fall in that $45K–$80K range according to Carta, then your new proposed salary of $80K on $150K total income actually lands right in the sweet spot. The IRS cares mostly about whether you’re paying yourself enough to avoid underpaying employment taxes. That’s where all those “50-50” and “60-40” rules come from because they’re just common benchmarks. Your new breakdown would put you at just over 50% salary to total income, which tends to be defensible. Also, it totally makes sense that if you tried to peg your salary to a $200K tech manager role, it’d kill the point of doing an S-corp. The whole goal is to split W-2 wages and distributions in a way that stays fair but doesn’t screw you on payroll taxes. What you're proposing looks thoughtful and supportable.
Great thanks Dolan! Appreciate the quick reply.
It's my pleasure! Please tell your friends.
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