Salary, distributions, and reasonable comp without the guesswork.
June: half-year actuals tell you whether to raise the rule, hold, or pull back.
Refreshes on the 1st of every month
Compare YTD distributions to the rule. If you're under, decide whether to true-up now or hold for safety. If you're over, the framework — not the bank account — gets the final word.
For S-corp owners, the IRS expects 'reasonable compensation' for the work you do — paid as W-2 salary, with payroll taxes — before you take distributions. Get this wrong and the IRS reclassifies distributions as wages, with penalties.
A workable rule of thumb: in a profitable services business, W-2 salary tends to land between 30-60% of total owner take. Lower share at higher revenue, never below documented reasonable comp.
Owner functions as GM (60% of time, market = $130k) and senior producer (40% of time, market = $90k). Blended reasonable comp = $114k. Business generates $300k available for owner. Pay $114k as W-2, $186k as distribution. Payroll tax savings vs. all-W-2: ~$28k/year.
Tie your distribution policy to a minimum operating cash threshold, not last quarter's profit. Profit doesn't pay payroll — cash does.
A working model and the weekly ritual that keeps it honest.
Org-design templates from operators who've done it twice.
I-9, W-4, state registrations, and the paperwork everyone forgets.