Hi;

For the year ending Dec. 31, 2010, my S-Corp. has a gross income of $55,820.00. After paying myself (salary of $38,500 for year ending Dec. 31, 2010) and other office expenses, the net income stands at approx. $11,700.00.

Does my salary sound reasonable? Or, should I give myself another check before 2010 is done?

FYI: I'm a software developer, but I only work approx. 25 hours per week.

Thanks & your advice is appreciated.

HAPPY HOLIDAYS!

Sincerely, Robert S.

I personally think that your salary is both adequate and reasonable based on the circumstances that you have disclosed. In fact, after paying your salary and the related payroll taxes, clearly this amount appears to be greater than 70% of your gross income.

Furthermore, the salary that you have taken of $38,500 appears to be around 77% of the total profits earned from the S Corporation, that is,

$38,500
--------- = 77%
$50,200 (Net income plus salary equals)

Both of this situations would appear to demonstrate adequate S Corporation reasonable salary! Fortunately, you would not need to worry about the IRS recharacterization issues!

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Hi; thanks for your reply and the calculations. Much appreciated! Sincerely, Robert S.