Everyone wants an S-Corp for one reason:

🟣to reduce self-employment tax

But here’s the part contractors mess up:

🟣You can’t just pay yourself $20K and call the rest “distributions.”

With an S-Corp, you’re typically doing two things:

🟣Paying yourself a W-2 salary🟣Taking the remaining profit as distributions

And the entire strategy depends on this one phrase:

🟣“reasonable compensation”

If you underpay your salary to force more profit into distributions…that’s the number one entry point for an audit and reclassification.

Because the IRS expects you to pay yourself like you’re doing real work:

– managing crews- bidding jobs- running jobsites- estimating- dealing with clients- handling scheduling + payroll

So the best S-Corp setup isn’t the one with the lowest salary…

🟣it’s the one that’s defensible.

Pro tip for contractors:If you’re making money and still doing the work, your salary should reflect that.

S-Corps can be a legit tax strategy — but only when your payroll + bookkeeping are clean and the salary makes sense.

Book a time to review your reasonable comp for 2026: https://accountingsolutionsllp.com/appointment/