Drive the I-575 corridor through Canton on a weekday morning and you can read the local economy off the trucks. Electrical, plumbing, HVAC, roofing, grading, framing, septic, pool service. Cherokee County’s population has grown roughly 42 percent since 2010, and somebody had to build all of it. The businesses that did are now sitting on revenue their owners did not project when they filed the paperwork in a kitchen at night years ago.
A lot of those owners took the S-Corp election somewhere along the way, usually on the recommendation of a good CPA who correctly saw that the self-employment tax bill on a growing profit had become the largest single check the business was writing. That was the right call.
Then somebody had to pick a salary number. And for most Canton business owners, that number got picked once, in a hurry, and has never been revisited.
Why the Salary Number Exists at All
An S-Corp splits what the owner takes out of the business into two buckets. One is a W-2 salary, which is subject to payroll taxes. The other is a distribution of profit, which is not.
That split is the primary reason many S-Corp elections reduce employment taxes. It is also the reason the IRS pays attention. The rule is that an S-Corp owner who works in the business must pay themselves what the tax code calls reasonable compensation, meaning a salary that reflects what the work is actually worth. You cannot pay yourself a token salary and route everything else through distributions.
So there are two ways to get this wrong, and Canton business owners land on both sides of it regularly.
Getting It Wrong in the Expensive Direction
The most common version is not aggressive. It is cautious.
An owner sets their salary high because it feels safer, or because their CPA picked a conservative number to stay well clear of any argument, or because the salary was set back when profit was lower and it simply never came down as a percentage of what the business now earns. Every additional dollar paid as salary generally carries payroll taxes that a qualifying S-Corp distribution does not.
For a Canton trades business that has grown substantially over the last several years, that overage compounds quietly, year after year, with nobody flagging it because nothing is technically wrong. The return is filed correctly. The tax is paid. It is just more tax than the situation required.
Getting It Wrong in the Risky Direction
The other version is the one people worry about. An owner running a roofing or HVAC company with crews in the field pays themselves a salary that would not hire a competent field supervisor, let alone a person who sells the work, manages the crews, handles the money, and carries the whole thing on their back.
Reasonable compensation is a facts-and-circumstances test, not a formula, and there is no bright line published anywhere that tells you where safe ends. What the IRS looks at is what the owner actually does, how much time they spend doing it, and what a comparable person would be paid for that role in that market. A salary that ignores all four is the kind that draws a second look, and a reclassification comes with back payroll taxes, interest, and penalties attached.
What Actually Determines the Right Number
The honest answer is that it is a documented judgment, not a calculation. The factors that move it:
What the owner actually does. An owner who still swings a hammer three days a week and runs the office the other two has a different compensation profile than an owner who has hired a general manager and now works on the business instead of in it. In Cherokee County’s trades economy, that transition happens gradually, and salary is rarely revisited when it does.
What comparable roles pay in this market. Not a national average. What it costs to hire someone in the Canton and greater Cherokee County labor market to do the job the owner is doing. With Northside Hospital Cherokee anchoring the county’s largest employment base and a large professional services and construction workforce alongside it, local comparable data exists and it is more defensible than a number pulled from a general rule of thumb.
What the business earns. A salary has to be plausible against the profit that supports it. A business at a modest profit and a business at several times that cannot reasonably justify the same owner salary.
What the rest of the plan needs. This is the part that gets left out of the conversation almost every time, and it is the part that matters most.
The Piece Most Owners Never Get Told
Salary is not only a tax input. It is the number that determines what else is possible.
Retirement plan contributions for an S-Corp owner are tied to W-2 compensation. Set the salary purely to minimize payroll tax this year and you can quietly cap how much can be moved into a retirement plan, which is one of the few remaining tools that reduces taxable income and builds wealth outside the business at the same time. Salary also feeds Social Security credits, and it affects how a lender reads a personal financial statement when the business goes to borrow.
That is why the lowest defensible salary is not automatically the best salary. The right number is the one that satisfies the reasonable compensation standard, keeps payroll tax where it should be, and still supports the retirement plan and the borrowing picture the owner needs. Optimizing one of those three in isolation usually costs something on the other two.
For business owners in Cherokee County who want to understand the sequencing behind this kind of decision, the tax strategy for Cherokee County GA business owners post covers how these choices stack in order of leverage.
Why This Falls Between the Cracks
Your CPA sets the salary and runs payroll. That is their job and most do it well. But the CPA is generally solving for a correct, defensible return, not for how the salary interacts with a retirement plan five years from now or with the eventual sale of the business.
The financial advisor, meanwhile, usually sees the retirement account after the contribution has already been limited by a salary decision made months earlier in a conversation they were not part of.
Neither party is doing anything wrong. The number just gets set in one room and felt in another. Matt Losanno works with your CPA rather than around them, so the salary decision gets made once, with the tax bill, the retirement plan, and the long-term plan all on the table at the same time. That is what a financial advisor in Canton, GA working specifically with business owners is for.
A Reasonable Place to Start
If you run an S-Corp in Canton or anywhere in Cherokee County, three questions are worth asking before the next payroll run:
When was the salary number last reviewed, and has the business grown since then? Does the number reflect what you actually do today, or what you did when it was set? And is the salary large enough to support the retirement contributions you want to be making?
If you cannot answer all three, the number is probably due for a look. It does not mean it is wrong. It means nobody has checked.
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This content is for educational and informational purposes only. It does not constitute tax, legal, or investment advice. Reasonable compensation is a facts-and-circumstances determination that depends on your specific business, role, and market. Every business situation is different, and tax laws vary by state. Consult your CPA and tax professional before setting or changing your S-Corp salary.