First of all, thank you so much for actually answering my question in simple terms that I could understand.
As to the justification for paying me a salary that is less than the company intake, I believe the IRS definition of reasonable is the industry average, give or take. I have quite a few friends w/S-corps and all of them get healthy K-2 profit distributions. I mean as long as my salary is not artificially low and supports my cost of living, IRS should be OK with it, no?
I read a little on what IRS considers a reasonable salary and it seems people often use 60/40 rule: 60% towards the salary and remaining 40% go to the profit distribution.
Even if IRS finds my salary unreasonable, all I risk is having to pay back payroll taxes plus some penalty.
As long as I don't go to jail, I am OK with it.
Thank you again!
