One of the biggest advantages of operating as an S corporation is the flexibility it provides for tax planning.
But that flexibility only works if you’re reviewing your business regularly.
One of the most common mistakes we see isn’t that business owners set the wrong salary—it’s that they never revisit it.
Business changes.
Revenue changes.
Profitability changes.
Your salary should be reviewed as those changes occur.
During a recent discussion, one of our CPAs explained that many S corporation owners continue paying themselves based on what made sense several years ago, even though their business looks very different today.
That can lead to unnecessary payroll taxes and missed planning opportunities.
At FJ & Associates, we help business owners throughout Kaysville, Layton, Roy, Farmington, Riverdale, Ogden, Tulsa, and Westerly review their S corporations before year-end so compensation decisions reflect where the business is today—not where it was three years ago.
Your Business Changes Every Year—Your Salary Should Too
Many business owners think about setting their salary once, then never revisit the decision.
In reality, reasonable compensation isn’t static.
It should evolve alongside your business.
Questions worth asking every year include:
Has revenue increased or decreased?
Is profitability different than previous years?
Has your role in the company changed?
Are you spending more or less time working in the business?
What does next year look like?
Has revenue increased or decreased?
Is profitability different than previous years?
Has your role in the company changed?
Are you spending more or less time working in the business?
What does next year look like?
Year-end is the ideal time to step back and evaluate these questions before another payroll year begins.
The Mistake We See Most Often
One of the best examples shared during the interview involved business owners whose companies experienced several exceptional years.
As profits increased, they increased their salaries.
That made sense at the time.
But eventually business slowed.
Revenue normalized.
Profit margins changed.
Yet they continued paying themselves the higher salary established during those peak years.
The result?
They were paying more Social Security and Medicare taxes than necessary because their compensation no longer reflected the current business.
The issue wasn’t that they made the wrong decision originally.
The issue was that nobody revisited it.
Why Annual S Corporation Meetings Matter
Another point mentioned during the discussion is one that’s often overlooked.
S corporations are expected to hold annual meetings.
Even if you’re the sole shareholder.
As the speaker joked:
“If you’re the sole owner… you’ve got to have a meeting with yourself.”
“If you’re the sole owner… you’ve got to have a meeting with yourself.”
While the comment was lighthearted, the underlying point is important.
The annual meeting provides a natural opportunity to review:
Owner compensation
Business performance
Profitability
Upcoming goals
Tax planning opportunities
Entity strategy
Owner compensation
Business performance
Profitability
Upcoming goals
Tax planning opportunities
Entity strategy
These discussions help ensure your business decisions remain intentional rather than simply continuing year after year without review.
Reasonable Compensation Isn’t About Paying the Lowest Salary
One common misconception is that lowering your salary automatically lowers your taxes.
That’s not how reasonable compensation works.
The goal isn’t simply reducing payroll taxes.
The goal is ensuring compensation accurately reflects the work performed and the current financial condition of the business.
Every business is different.
Every industry is different.
That’s why compensation decisions should be reviewed with a CPA rather than relying on a one-size-fits-all approach.
Why Year-End Is the Best Time to Review Your S Corporation
Waiting until tax season often limits your options.
By reviewing your S corporation before year-end, you have time to evaluate:
Current profitability
Payroll levels
Estimated taxes
Retirement opportunities
Business goals for the coming year
Current profitability
Payroll levels
Estimated taxes
Retirement opportunities
Business goals for the coming year
Planning before December 31 provides far more flexibility than trying to adjust decisions after the year has already ended.
What We Recommend
At FJ & Associates, our recommendation is simple:
Don’t assume last year’s strategy is still the best strategy.
Each year, review:
Owner salary
Business profitability
Cash flow
Tax projections
Entity structure
Long-term business goals
Owner salary
Business profitability
Cash flow
Tax projections
Entity structure
Long-term business goals
Small adjustments made proactively often produce better outcomes than major corrections after the fact.
Local Support for Utah Business Owners
Whether you’re operating an S corporation in Kaysville, Layton, Roy, Farmington, Riverdale, or Ogden, proactive tax planning is one of the best investments you can make in your business.
Our team works with S corporation owners throughout Utah and beyond to review compensation, identify planning opportunities, and help business owners make informed decisions before year-end arrives.
Key Takeaways
One of the biggest S corporation mistakes isn’t setting the wrong salary—it’s failing to review it.
Businesses evolve.
Compensation should evolve too.
Annual planning helps ensure your payroll reflects today’s business rather than yesterday’s success.
FAQS
1. Should S corporation owners review their salary every year?
Yes. Business performance changes over time, and owner compensation should be reviewed annually to determine whether it still reflects the current business.
2. What is reasonable compensation?
Reasonable compensation generally refers to paying yourself an amount that reflects the work you perform for the business. The appropriate amount depends on your specific circumstances.
3. Can paying too much salary increase taxes?
Potentially. If compensation is higher than necessary based on the business’s current situation, payroll taxes such as Social Security and Medicare taxes may also be higher.
4. Why should year-end planning happen before December 31?
Reviewing compensation before year-end gives business owners more flexibility to make adjustments while there is still time for them to affect the current tax year.
5. Does a single-owner S corporation still need an annual meeting?
Yes. Even sole shareholders should document annual corporate actions and review important business decisions as part of maintaining corporate formalities.
6. How often should an S corporation meet with its CPA?
Most growing businesses benefit from at least one proactive planning meeting before year-end, with additional meetings during periods of significant growth or change.
7. What should be reviewed during an annual S corporation meeting?
Owner compensation, profitability, tax projections, business goals, payroll, cash flow, and upcoming planning opportunities should all be part of the discussion.
Author Bio
Missy Dennis, CPA
Partner | FJ & Associates, PLLC | Kaysville, Utah
Missy holds a Master of Accounting degree from the University of Utah and is a licensed Certified Public Accountant.
She is committed to providing clear, accurate, and actionable guidance so clients can navigate complex financial decisions with confidence.
With more than twenty years of public accounting experience, Missy Dennis specializes in:
Tax preparation and tax advisory
Bookkeeping strategy alignment
Estate and trust taxation
Audit and consulting services
Low-income housing tax credits
Non-profit accounting
Small- and mid-sized business advisory
Tax preparation and tax advisory
Bookkeeping strategy alignment
Estate and trust taxation
Audit and consulting services
Low-income housing tax credits
Non-profit accounting
Small- and mid-sized business advisory
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