In Florida, where small businesses make up a large share of the economy, Tampa S-Corp owners often face increased IRS compliance challenges when setting their own salaries.
The IRS expects reasonable compensation based on your duties, industry, and local market rates. Paying yourself too little can lead to an audit while paying too much can increase your payroll tax burden.
Before You Start
Before calculating your reasonable compensation, gather:
- Job description so you can match your role to similar positions in the Tampa market.
- Industry salary data to benchmark your pay against market rates and support your case if challenged. If you are unsure how to start, a CPA services guide for Tampa small businesses can help.
- Financial records including profits, expenses, and tax filings.
- Hours worked and duties performed to quantify your business involvement.
- Documentation tools such as spreadsheets or secure cloud storage to keep your records audit-ready.
Step-by-Step
Step 1: Define Your Role
List every responsibility you handle from management to operations to client work. Comparing these duties with local roles helps you identify a fair salary.
Step 2: Research Market Rates
Check the Bureau of Labor Statistics, Salary.com, and Tampa job boards for current rates. If you are unsure what the IRS may flag, review common audit triggers in 2025 to see patterns in past cases.
Step 3: Adjust for Your Business Size and Profit
Smaller S-Corps may justify slightly lower pay than large companies but your salary should still be in line with fair market value.
Example: If your S-Corp nets $80,000 a year, paying yourself $25,000 could raise questions with the IRS.
Step 4: Document Your Calculation
Keep detailed notes on salary sources, job duties, and the rationale for your number. Many business owners store this data with their accountant, for example, affordable CPAs in South Tampa often include secure record storage in their services.
Step 5: Review Annually
Revisit your salary each year to reflect business growth, inflation, or changing responsibilities. Doing this regularly can also help avoid common tax audit traps that catch unprepared business owners.
Key Concept: What the IRS Considers “Reasonable”
The IRS reviews several factors to determine if an S-Corp salary is reasonable:
- Duties performed and the level of responsibility
- Time and effort dedicated to the business
- Local wage standards for similar roles
- Company profitability
- Training, skills, and experience
In Tampa, market wages can vary greatly. A tech consultant may earn significantly more than a retail store manager, even with similar hours.
Since there is no strict IRS formula, working with professionals who understand Tampa’s tax and audit landscape can make your approach more defensible.
Troubleshooting
Mistake: Paying yourself only in distributions to avoid payroll taxes
Solution: Pay a reasonable salary first before taking distributions.
Mistake: Using outdated salary data
Solution: Refresh your research annually and adjust for market changes.
Mistake: Not documenting your process
Solution: Maintain written, dated evidence of your salary determination process.
Mistake: Overpaying yourself without need
Solution: Factor in the payroll tax cost and impact on your ability to reinvest in the business.
Frequently Asked Questions
How does the IRS define reasonable compensation for an S-Corp owner in Tampa?
It is the amount that would ordinarily be paid for similar work in the same market, as explained in this Tampa CPA IRS compliance resource.
What happens if I pay myself too little?
You risk IRS reclassification of distributions as wages which can result in back taxes, penalties, and interest.
Can my salary be based on part-time hours?
Yes, but your documentation must show your actual hours and duties to justify the lower pay.
Where can I find reliable salary data for my industry in Tampa?
Government labor statistics, industry reports, and insights from South Tampa accounting experts are reliable.
Should I get professional help to determine my salary?
Yes. Partnering with a CPA experienced in IRS audit help in Tampa ensures your salary is compliant and well-documented.
Talk to a CPA Who Gets It
Smart financial decisions start with the right conversation. Let’s figure out what works best for your business.
Smart financial decisions start with the right conversation. Let’s figure out what works best for your business.
Conclusion
For Tampa S-Corp owners, determining reasonable compensation means finding the right balance between fair market pay and tax efficiency.
Start by defining your role, researching local rates, adjusting for business size and profit, documenting your process, and reviewing annually.
This method reduces audit risk and protects your bottom line. Many owners work with Tampa-based CPA firms to make sure their approach is both compliant and optimized for tax savings.