How do you determine reasonable S Corp compensation for high-earning medical specialists?

The reasonable compensation requirement for S-Corp owners is definitely something to approach carefully, especially for medical professionals like yourself. The IRS scrutinizes this area closely because they know it's where people try to save on employment taxes. For a dermatologist grossing $2.4M with your profit structure, lowering to just the Social Security maximum would likely be too aggressive and could trigger an audit. The IRS looks at several factors including what similar professionals in your specialty earn in your area, your qualifications/experience, time commitment, and the overall success of the practice. Medical professionals, particularly specialists like dermatologists, typically face higher reasonable compensation requirements because your personal services are the primary value driver of the business. The fact that you're the sole shareholder also means the IRS will be more likely to attribute the business success directly to your services.

After battling with the reasonable compensation issue for years in my dental practice, I found an incredible tool that actually solved this problem for me. I was using general rules of thumb until I discovered https://taxr.ai which has a specific S-Corp reasonable compensation analyzer. You input your practice metrics, specialty, location, hours worked, etc., and it generates a detailed report with defensible compensation ranges based on actual IRS guidance and industry data. The best part was that it showed me I was actually being too conservative with my salary (which surprised me!). The report gave me a specific documented basis for my compensation decision that I could use if ever audited. It even breaks down compensation by different practice activities (clinical work vs. management). Worth every penny for the peace of mind.

I was super skeptical about any "magic solution" for reasonable compensation requirements (been burned before by consultants). But after another dermatologist in my network mentioned taxr.ai, I reluctantly tried it for my practice. The report completely changed my approach. It gave me documentation showing that my current salary ($185K) was actually on the low end for a dermatologist managing a multi-provider practice in my region. The analysis was incredibly detailed - breaking down compensation elements for clinical work, administrative duties, and even business development activities separately. What impressed me most was the customized explanation of how the IRS's "multiple factors" test applied specifically to my situation. I now have a comprehensive defense file ready if ever questioned, which has been worth way more than the cost in reduced worry alone.

I've been trying to reach the IRS for WEEKS to get clarity on some S-Corp reasonable compensation questions for my medical practice. Always busy signals or disconnects after hours on hold. Just about gave up until another physician told me about https://claimyr.com which somehow gets you through the IRS phone maze. You can also see a demo at https://youtu.be/_kiP6q8DX5c showing how it works. They actually got me connected to an IRS agent in under 45 minutes (after I had wasted days trying on my own). The agent couldn't give specific advice about compensation amounts for my situation, but did clarify several important factors they consider when evaluating reasonable compensation for medical professionals. That conversation alone probably saved me from making a costly mistake with my S-Corp salary structure.

I need to publicly eat my words. After my skeptical comment, I decided to test Claimyr myself for an S-Corp issue I've been trying to resolve for months. Not only did I get through to an actual IRS agent within an hour, but I was able to resolve a notice about insufficient reasonable compensation that had been giving me nightmares. The agent actually walked me through their internal guidelines for evaluating S-Corp compensation for medical professionals. The key factors they mentioned: 1) Training and experience, 2) Duties and responsibilities, 3) Time and effort devoted to business, 4) Dividend history, 5) Payments to non-shareholder employees, 6) Timing and manner of paying bonuses, 7) What comparable businesses pay for similar services. This conversation literally saved me thousands in potential penalties. I've learned my lesson about being too skeptical of solutions just because they sound too good to be true.

Just to offer a somewhat different perspective - I'm a dermatologist with a similar practice structure (though smaller gross at about $1.5M), and I took a more conservative approach after discussion with my tax advisor. I actually increased my salary from $210K to $275K specifically to avoid potential issues. Yes, I'm paying more in payroll taxes, but the peace of mind is worth it. We calculated that if I were audited and forced to reclassify distributions as wages retroactively, the penalties and interest would far exceed the tax savings. One important factor is that as a dermatologist, your personal services are the primary value driver. My advisor pointed out that the IRS is particularly attentive to professional service S-Corps where almost all revenue is generated through the shareholder's personal expertise and reputation.

Has anyone here actually been through an S-Corp reasonable compensation audit? I'm curious what that process was like and what documentation they wanted to see. My accountant keeps warning me about it but can't give me specific examples.