{"id":13021,"date":"2021-04-08T11:17:30","date_gmt":"2021-04-08T18:17:30","guid":{"rendered":"http:\/\/evergreensmallbusiness.com\/?p=13021"},"modified":"2021-04-09T08:27:49","modified_gmt":"2021-04-09T15:27:49","slug":"irs-s-corporation-shareholder-salary-data","status":"publish","type":"post","link":"https:\/\/evergreensmallbusiness.com\/irs-s-corporation-shareholder-salary-data\/","title":{"rendered":"IRS S Corporation Shareholder Salary Data"},"content":{"rendered":"

\"IRS<\/a>If you operate as an S corporation, you already know that you need to set a salary for shareholder-employees. A reasonable one.<\/p>\n

And you hear lots of rules of thumb (including some at this website).<\/p>\n

And then people talk… you know, about what you can really<\/em> do. (Hey. We’ve all heard the stories…)<\/p>\n

Which is why it’s useful and interesting to sift through actual IRS S corporation salary data. So I want to do that here.<\/p>\n

A Quick Review of the Basic Rule<\/h2>\n

Before we start that sifting, though, let’s recognize and restate the basic rule for setting S corporation shareholder-employee salaries.<\/p>\n

That basic rule goes like this: You need to set a salary that some other firm would pay someone for doing similar work.<\/p>\n

Furthermore, here’s another good idea. It’s always wise and smart to dig up some real<\/em> salary survey data for your area for jobs like you’re looking at. (We particularly like Bureau of Labor Statistics data which you can get to from here.<\/a>)<\/p>\n

So keep that in mind as you continue reading. And now let’s look at the data.<\/p>\n

Average S Corporation Shareholder Salaries<\/h2>\n

The table that follows shows average revenues, officer compensation deductions and profits for S corporations operating in roughly a couple of dozen industry categories.<\/p>\n

The data comes from the 2017 1120S tax returns S corporation owners filed with the Internal Revenue Service in 2018. (Source: SOI Tax Stats – S Corporation Statistics<\/a> .)<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Industry<\/strong><\/td>\nTotal Revenues<\/strong><\/td>\nOfficer Salaries Deduction<\/strong><\/td>\nNet Income<\/strong><\/td>\n<\/tr>\n
Average across all industries<\/strong><\/em><\/td>\n\u00a0 \u00a0 \u00a01,717,459<\/strong><\/em><\/td>\n\u00a0 \u00a0 62,046<\/strong><\/em><\/td>\n\u00a0 \u00a0 \u00a0 101,572<\/strong><\/em><\/td>\n<\/tr>\n
Mining<\/td>\n\u00a0\u00a0\u00a0\u00a0 1,861,736<\/td>\n\u00a0 \u00a0 \u00a054,597<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 176,957<\/td>\n<\/tr>\n
Construction of buildings<\/td>\n\u00a0\u00a0\u00a0\u00a0 2,532,297<\/td>\n\u00a0\u00a0\u00a0\u00a0 48,177<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 103,805<\/td>\n<\/tr>\n
Heavy and civil engineering construction and land subdivision<\/td>\n\u00a0\u00a0\u00a0\u00a0 4,356,906<\/td>\n\u00a0\u00a0\u00a0\u00a0 90,244<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 236,445<\/td>\n<\/tr>\n
Specialty trade contractors<\/td>\n\u00a0\u00a0\u00a0\u00a0 1,663,561<\/td>\n\u00a0\u00a0\u00a0\u00a0 61,646<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 113,684<\/td>\n<\/tr>\n
Food manufacturing<\/td>\n\u00a0\u00a0\u00a0 13,361,496<\/td>\n\u00a0\u00a0\u00a0 161,648<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 701,717<\/td>\n<\/tr>\n
Wood product manufacturing<\/td>\n\u00a0\u00a0\u00a0\u00a0 5,446,238<\/td>\n\u00a0\u00a0\u00a0\u00a0 84,442<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 276,882<\/td>\n<\/tr>\n
Paper manufacturing<\/td>\n\u00a0\u00a0\u00a0 21,245,809<\/td>\n\u00a0\u00a0\u00a0 366,622<\/td>\n\u00a0\u00a0\u00a0 1,159,865<\/td>\n<\/tr>\n
Printing and related support activities<\/td>\n\u00a0\u00a0\u00a0\u00a0 2,152,810<\/td>\n\u00a0\u00a0\u00a0\u00a0 70,624<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 102,048<\/td>\n<\/tr>\n
Chemical manufacturing<\/td>\n\u00a0\u00a0\u00a0\u00a0 9,940,339<\/td>\n\u00a0\u00a0\u00a0 325,824<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 761,048<\/td>\n<\/tr>\n
Plastics and rubber products manufacturing<\/td>\n\u00a0\u00a0\u00a0\u00a0 8,523,764<\/td>\n\u00a0\u00a0\u00a0 183,443<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 616,423<\/td>\n<\/tr>\n
Nonmetallic mineral product manufacturing<\/td>\n\u00a0\u00a0\u00a0\u00a0 5,376,438<\/td>\n\u00a0\u00a0\u00a0 133,857<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 335,001<\/td>\n<\/tr>\n
Fabricated metal product manufacturing<\/td>\n\u00a0\u00a0\u00a0\u00a0 4,286,152<\/td>\n\u00a0\u00a0\u00a0 123,416<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 302,302<\/td>\n<\/tr>\n
Machinery manufacturing<\/td>\n\u00a0\u00a0\u00a0\u00a0 4,309,651<\/td>\n\u00a0\u00a0\u00a0 108,096<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 349,773<\/td>\n<\/tr>\n
Computer and electronic product manufacturing<\/td>\n\u00a0\u00a0\u00a0\u00a0 8,019,443<\/td>\n\u00a0\u00a0\u00a0 220,478<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 667,210<\/td>\n<\/tr>\n
Transportation equipment manufacturing<\/td>\n\u00a0\u00a0\u00a0\u00a0 7,913,887<\/td>\n\u00a0\u00a0\u00a0 166,198<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 579,815<\/td>\n<\/tr>\n
Furniture and related product manufacturing<\/td>\n\u00a0\u00a0\u00a0\u00a0 4,423,182<\/td>\n\u00a0\u00a0\u00a0\u00a0 94,029<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 200,941<\/td>\n<\/tr>\n
Miscellaneous manufacturing<\/td>\n\u00a0\u00a0\u00a0\u00a0 2,966,943<\/td>\n\u00a0\u00a0\u00a0\u00a0 99,933<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 235,635<\/td>\n<\/tr>\n
Clothing and clothing accessories stores<\/td>\n\u00a0\u00a0\u00a0\u00a0 1,076,113<\/td>\n\u00a0\u00a0\u00a0\u00a0 33,532<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 39,713<\/td>\n<\/tr>\n
Sporting goods, hobby, book, and music stores<\/td>\n\u00a0\u00a0\u00a0\u00a0 1,322,979<\/td>\n\u00a0\u00a0\u00a0\u00a0 41,916<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 42,820<\/td>\n<\/tr>\n
Nonstore retailers<\/td>\n\u00a0\u00a0\u00a0\u00a0 1,325,915<\/td>\n\u00a0\u00a0\u00a0\u00a0 37,896<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 63,518<\/td>\n<\/tr>\n
Telecommunications (including paging, cellular, satellite, cable and Internet service providers)<\/td>\n\u00a0\u00a0\u00a0\u00a0 2,634,395<\/td>\n\u00a0\u00a0\u00a0\u00a0 58,386<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 150,375<\/td>\n<\/tr>\n
Other information services<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 943,614<\/td>\n\u00a0\u00a0\u00a0\u00a0 52,606<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 54,258<\/td>\n<\/tr>\n
Nondepository credit intermediation<\/td>\n\u00a0\u00a0\u00a0\u00a0 1,924,311<\/td>\n\u00a0\u00a0\u00a0\u00a0 77,150<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 206,693<\/td>\n<\/tr>\n
Securities, commodity contracts, other financial investments, and related activities<\/td>\n\u00a0\u00a0\u00a0\u00a0 1,374,844<\/td>\n\u00a0\u00a0\u00a0 139,252<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 337,154<\/td>\n<\/tr>\n
Professional, scientific, and technical services<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 835,516<\/td>\n\u00a0\u00a0\u00a0\u00a0 71,680<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 91,286<\/td>\n<\/tr>\n
Management of companies (holding companies)<\/td>\n\u00a0\u00a0\u00a0\u00a0 1,041,515<\/td>\n\u00a0\u00a0\u00a0\u00a0 56,498<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0 417,651<\/td>\n<\/tr>\n
Educational services<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 509,130<\/td>\n\u00a0\u00a0\u00a0\u00a0 32,718<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 37,677<\/td>\n<\/tr>\n
Accommodation<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 979,720<\/td>\n\u00a0\u00a0\u00a0\u00a0 27,281<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 76,953<\/td>\n<\/tr>\n
Food services and drinking places<\/td>\n\u00a0\u00a0\u00a0\u00a0 1,220,746<\/td>\n\u00a0\u00a0\u00a0\u00a0 35,853<\/td>\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 52,957<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Understanding the Table’s Salary Data<\/h2>\n

Let me quickly describe the table’s data so no confusion exists.\u00a0We can do this by talking about the first row.<\/p>\n

Row one in the table reports on the average revenue, officer salary deduction and net profit considering all 4.7 million S corporations.<\/p>\n

Make sure you understand those numbers: On average,<\/em> an S corporation generates roughly $1.7 million of revenue, deducts $62,046 of salaries expense for all its officers, and reports just over $100,000 of net income.<\/p>\n

Tip:<\/strong> Remember too to mentally adjust the numbers for inflation that’s occured since 2017.<\/p>\n

And then reading down the rows of the able, look at the other averages for the industry categories listed: mining, construction, manufacturing and so on.<\/p>\n

You can probably glean some insights from this information. But you’ll want to keep in mind a few facts.<\/p>\n

The S Corporation Salaries Number is the Deduction<\/h2>\n

A first thing to note, for example, the S corporation salaries value the IRS data lets you calculate? The value represents the average deduction.<\/p>\n

So, that $62,046 average just referenced? That’s the average deduction for officer compensation. The amount might represent one officer making $62,046. Or two officers making $31,023. Or three officers making–well, I don’t need to go on. You see how this works.<\/p>\n

Officers Not Necessarily Shareholder Employees<\/h2>\n

A quick related note: An officer isn’t necessarily a shareholder.<\/p>\n

Now most of the officer compensation deduction probably does go to shareholder-employees. But maybe not all.<\/p>\n

In any case, that’s something else to keep in mind.<\/p>\n

Means Probably Higher than Medians<\/h2>\n

One final thing to remember: The table above shows mean<\/em> averages: mean<\/em> total revenues, mean<\/em> officer compensation deductions and mean<\/em> net profit.<\/p>\n

The reality to recognize about mean averages? A mean value probably exceeds by a large amount the median, or midpoint, value.<\/p>\n

For example, suppose you or I calculate the mean and the median of the following ten officer compensation deductions:<\/p>\n