How to determine a "reasonable salary" for single member s corp

[wasatchm]

just converted from sole proprietor to s corp.  but am having trouble determining reasonable salary.  I run online sales business (sell retail merchandise). I have been doing this 15 years and my salary has ranged from 20K to 50K.  

there are very little skills and knowledge required to do what I do. I do need some computer skills and I also need access to credit (capital) to acquire inventory and do need a car for transportation.

any idea on how much I can take as a distribution per year?  I anticipate my income going up in the coming years so I have switch to s corp to hopefully limit my self employment taxes.  

salary of sales jobs can very significantly.  the BLS web site shows avg salary for retail sales person to be 29K yr.   should I pick 29K as the salary?  or are other factors at play?

thanks 

[pk]

Assuming that what you are talking about is that you were operating as a single member LLC ( a disregarded entity )  filing  Schedule-C and getting net income  of  20K to 50K per year -- not a W-2   ( don't believe you can be an employee  and owner at the same time).  Thus   you paid 15.3 %  SECA taxes and now because you are an employee of the S-Corp, you will pay 7.65% while the S-Corp pays the  other 7.65%  of the FICA.  There are other  "goods" and " bads" of an S-Corp.  Note that you have to use  TurboTax business to  prepare  and file the business return , W-2 & the K-1(s).  Then on your personal  / individual return you use the K-1 plus the W-2 .  It is a lot more comlicated,  but of course there are benefits.

The salary you quote  is based on a national average but if in the last few years your  net income from the business  has been in the  range of 20 to 50K , there  should be no issue giving yourself  a  35K or 40K  ( note that 40K income   is equivalent to around 44K  of  self-employment because of the extra 7.65% that you  pay for the privilage of being independent contractor/self-employed).  Also you have to take into consideration the expenses that the S-Corp is planning to spend  on your behalf-- retiremnet benefits, helath insurance etc. etc.

Hope this helps

[wasatchm]

thanks for the reply.  
my income has been in the high end of the range the last few years.  the reason I formed LLC with S corp tax status was to reduce self employment taxes as much as possible.   if I take a salary of 40K, it's quite possible I won't save hardly anything on taxes.  that's why I mentioned the 29K/yr.  the s corp will not be providing any type of benefits (health insurance or retirement) at the present time.  as a sole proprietor, I was putting money in a roth IRA and SEP IRA.  I can still keep doing that right?  or am I only limited to putting money in the ROTH IRA now?   I am glad you brought the retirement issue up.  never even thought of that.   

the salary thing would be simple if i was a CPA or doctor or roofer.  but when you run an online sales business, it's difficult to find any salary information on that.  the only thing I can look at is sales jobs where few skills are required.  the BLM site for retail sales person at 29K was the closest I could find.  I didn't see anything about online sales.  the wages in my state are much lower than the nation average.  but then again since my sales are all online, does the average wage of a saleperson in my state matter.

the IRS does say on it's website to consider the following when determining compensation:

The three major sources (for your gross receipts) are:
1) Services of shareholder,
2) Services of non-shareholder employees, or
3) Capital and equipment.

if only #1 applies then I should take salary only.  if 2 or 3 also apply, then a distribution can also be taken.  1 & 3 are essential to my business.  I do use money (capital) significantly (as any sales business would).  to sell 40K worth of products a year, I probably have to spend 20K or more on products, supplies, travel,  gas, meals, etc).
based on those numbers I would say CAPITAL is SIGNIFICANT in business operations and making profit.  some years would be higher...where I may spend 25K or 30K during the year to make $40K in profit.  it would just depend on the year.     if I was a doctor or lawyer, this would be pretty simple.   although maybe it's good in a way.  the IRS would have a hard time determining what the salary of someone is who sells stuff online out of their home should be.  

thanks