Most single-shareholder S-corp owners who haven't paid for a formal report set their own salary by picking a round number -- $50,000 because it sounds about right, whatever a friend in the same trade pays themselves, or last year's figure rolled forward unchanged. That number might be perfectly defensible. The problem is nothing has checked it against the comparable-wage test courts and the IRS actually apply, and that gap is the fact pattern in every reported reasonable-compensation adjustment case.
| Job | Picking a round number | This calculator |
|---|---|---|
| How the number is set | Rounded to a figure that sounds reasonable, matches a peer, or repeats last year's number. | Compared against a comparable-wage figure you supply, scaled to your actual hours. |
| Whether it's tied to the test that gets litigated | Not necessarily -- a round number is not itself evidence of the comparable-wage factor. | Directly compares your planned salary to that factor and flags the gap. |
| Seeing the tax cost of the gap | Not visible until a preparer or examiner runs the numbers separately. | Shown immediately, in FICA-tax dollars, at your planned figure and at the comparable-wage floor. |
| A documentation trail if asked later | Whatever you remember about why you picked that figure. | A nine-factor checklist you fill in and keep for your own records. |
| Cost | Free, no time spent beyond picking a number. | Free, a few minutes to fill in the numbers you already have. |
| Where your numbers go | Nowhere -- it's a guess, not data. | Nowhere -- stays in your browser's local storage, never uploaded. |
Nothing is wrong with the number itself -- $50,000 might even be defensible. What's missing is the comparison: a round number picked because it sounds reasonable, matches what a friend pays themselves, or is last year's figure rolled forward isn't tied to the comparable-wage test the IRS and courts actually apply (what would an unrelated employer pay someone else to do this specific job, for these specific hours). Watson v. Commissioner is exactly this pattern -- a round $24,000 salary against $200k-274k of annual profit, recharacterized because nobody had checked it against a market figure.
Picking the number is faster, yes. What a round number skips is seeing the FICA-tax cost of the gap between what you picked and what a comparable role actually pays, and having a documented answer ready if your preparer or an examiner asks how the figure was set. This calculator takes the same couple of numbers you already have -- your planned salary, the business's compensation pool, and a comparable-wage figure you supply -- and runs the comparison and the tax math in the time it takes to fill in a form.
Not on its own. Rev. Rul. 74-44's factors include the comparable-wage test and the corporation's dividend history, not simply consistency with a prior year -- a salary that was never benchmarked to a market wage doesn't become benchmarked by being repeated. It can still be a reasonable number; the point is that nothing so far has checked it against the test that actually gets litigated.
A guess never leaves your head, and this calculator never leaves your browser -- no account, no upload, and nothing sent to a server. The only difference is that one of the two gives you a comparison and a documentation checklist to keep.
This page names no specific product or service -- it compares against the generic method of picking a round salary figure without checking it against the comparable-wage test, not a competing tool.