An owner who provides services generally must receive reasonable wages before treating payments for those services as non-wage distributions. No fixed percentage of revenue, profit or distributions guarantees compliance.
Document the role, hours, local labor market and comparison method. Revisit the analysis when responsibilities change. Payroll taxes, benefit rules and retirement contribution limits belong in the same planning discussion, but they do not justify a salary unsupported by the work.
An example
Hypothetical: an owner stops supervising crews and hires an operations manager. The next compensation review records the duties transferred and the work the owner still performs instead of simply cutting salary by a chosen percentage.
Reviewed October 7, 2026. IRS reference ↗
This is a general reference. Discuss how the rules apply to your business with your tax professional.