The IRS requires that S-Corp owners pay themselves a fair salary based on industry norms to prevent tax avoidance through low salaries paired with high distributions, which aren't subject to payroll taxes. Key factors the IRS examines include the owner's experience, duties, time spent, comparable industry salaries, location, and company finances. To support salary choices, owners should keep detailed records like job descriptions, salary studies, and time logs. By aligning salary decisions with IRS guidelines, S-Corp owners reduce the risk of audits and potential penalties.
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