Carie Pace, Managing Partner at Alpina Tax & Accounting Services.
You have a payroll department, a benefits administrator, and an HR system. And you are almost certainly the worst-compensated person in your own company — from a tax efficiency standpoint.
Not because you pay yourself too little. Because how you pay yourself is costing you more than it should, every single year.
Here is the question nobody asked you: is your compensation structure doing all four of these things at once?
- Minimizing your payroll tax exposure
- Maximizing your retirement contributions
- Protecting your QBI deduction
- Shifting income to where it gets taxed least
It should be. If it isn’t, you are sending money to the IRS that was always legally yours to keep.
The S-Corp Salary Problem
If you’re an S-Corp owner, you are required to pay yourself a reasonable salary before taking distributions. That salary triggers payroll taxes. Your distributions don’t.
The gap between those two numbers is where your tax savings live — but only if the salary is set correctly.
Too low: The IRS flags it. S-Corp owner compensation is one of their top audit priorities right now.
Too high: You voluntarily paid payroll taxes you didn’t owe.
Most owners set their salary at formation and never touch it again. At your current revenue level, that number is almost certainly wrong — in one direction or the other.
The Retirement Contribution You’re Not Making
Here is what the tax code is offering you right now:
- Solo 401(k): Shelter up to $69,000 per year from your tax return. $76,500 if you’re over 50.
- Defined benefit plan: Shelter $200,000 or more annually, depending on your age.
Every dollar that goes into a qualified retirement plan disappears from your taxable income for that year. Permanently.
At a 37% marginal rate, a $200,000 defined benefit contribution eliminates $74,000 in federal tax — this year, not someday.
Most business owners at your revenue level are using a fraction of what they’re entitled to. The money is available. The provisions exist. The only thing missing is a plan someone actually built.
Family Employment: Powerful When Done Right
Employing a family member in a real operational role — at documented, market-rate compensation — shifts income from a 37% bracket into a 12% or 22% bracket. Within your own household.
On a $120,000 salary to a family member doing genuine work, the annual tax savings can exceed $30,000.
The rules are not flexible. You need:
- Documented job responsibilities
- Compensation that matches the market
- Actual work performed
The IRS doesn’t automatically suspect family employment. But undocumented family employment is a direct audit trigger. The difference between a legitimate strategy and a penalty is paperwork.
What This Is Costing You Right Now
At $2 million in owner income, the gap between an optimized compensation structure and a default one looks like this:
| What’s Missing | Annual Tax Cost |
| Miscalibrated S-Corp salary | $20,000 – $50,000 |
| Unfunded retirement plan | $25,000 – $74,000 |
| No income shifting strategy | $15,000 – $40,000 |
| Total gap | $60,000 – $164,000+ |
That is not an estimate. That is arithmetic applied to published tax rates and IRS contribution limits.
You’re not paying it because you made a mistake. You’re paying it because no one built a structure designed to stop it.