What is a reasonable salary for an S-corp owner and how do I defend it to the IRS?

The IRS requires S-corp owner-employees to pay themselves 'reasonable compensation' for the work they do before taking tax-favored distributions. Set the salary too low to dodge payroll taxes and the IRS can reclassify distributions as wages, plus penalties. Reasonable means what you would pay someone else to do your job, supported by factors like your duties, hours, experience, and industry pay data from sources such as the Bureau of Labor Statistics or salary surveys. Document your reasoning, keep comparables on file, and revisit the figure as profit grows. A common but not guaranteed benchmark is paying enough salary that distributions do not dwarf it. When in doubt, err higher; underpaying is the classic audit trigger for S-corps.