Proceed with caution when allocating a portion of your income as salary and a portion as a distribution. As noted in the previous post, the salaries of shareholders/owners in an S Corp are subject to income tax and self-employment tax whereas distributions are not. Thus, many are tempted to allocate as much income as they can as a distribution to avoid paying self-employment tax. An improper allocation may raise a "red flag" with the IRS. However you decide to structure your allocation, you should collect and maintain detailed records on how you determined your salary amount as reasonable given the nature of your business. This may require researching similar types of companies in your town/city/state/region to determine what is or what is not a reasonable salary.
@Mattparla
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