If you own an S-Corp and feel like your taxes are out of control, you are not imagining it. The fastest way to get real relief is to find focused help on your S-Corp salary, distributions, and deductions, and to do it before the next filing deadline hits. That may mean sitting down with a specialist, or even reaching out for Urgent tax help for S-Corp owners if you are already behind or worried about a big bill.
Most S-Corp owners I talk with in tech or related fields have a similar story. The company grows, revenue climbs, the product or service takes off, and taxes start to feel like this background bug that never gets fixed. It is not dramatic at first. Then you hit a year where the tax bill jumps by tens of thousands, and you realize your “set it and forget it” approach was not really a plan.
If that sounds a little familiar, you are not alone. And you do not need a perfect system to start doing better. You just need to understand a few key levers and pull them in time.
Why S-Corp taxes feel so confusing for tech people
Tech people are usually good with numbers. You can read a log file, compare options, or follow a data trail. Tax law feels different because the rules keep changing and the language is not written to be friendly. Also, you might be mixing W-2 work, side projects, equity, and S-Corp income at the same time.
With an S-Corp, the confusion usually comes from three places:
- Reasonable compensation (how much salary you should pay yourself)
- Self-employment and payroll taxes
- Timing of deductions and year-end planning
Reasonable compensation is the single most misunderstood S-Corp rule, and it creates many of the IRS problems S-Corp owners face.
So if you are looking for quick, realistic help, start with those topics, not with obscure tax code sections. You do not need to be a tax expert. You just need enough clarity to make good decisions and avoid obvious traps.
How S-Corp taxes actually work in practice
An S-Corp is not a separate tax-paying entity like a C-Corp. The income “passes through” to your personal return. You probably know that already, but the detail that matters is how the money gets from the company to you.
Salary vs distributions
In an S-Corp, you usually have two main ways to pay yourself:
- W-2 salary
- Shareholder distributions
Both are taxable, but they are taxed in different ways.
| Payment type | Where it shows up | Key tax impact |
|---|---|---|
| Salary (W-2) | Payroll records and your personal return | Subject to income tax and payroll taxes (Social Security and Medicare) |
| Distributions | Schedule K-1 and your personal return | Subject to income tax, but usually not to self-employment or payroll taxes |
This is why S-Corps can help lower your overall tax burden. You are trying to find a balance where your salary is “reasonable” for the work you do, and the rest of the profit is paid out as distributions that are not hit with payroll taxes.
But that is also where many people go too far and trigger IRS attention.
Reasonable compensation and why the IRS cares
The IRS expects you to pay yourself a reasonable salary from your S-Corp if you are doing work in the business. The exact number is not fixed, but it should reflect the market rate for someone doing your role.
Some S-Corp owners pay themselves a tiny salary and take the rest as distributions to save on payroll taxes. That can work for a while, until it does not.
If your salary looks obviously low compared to your revenue, the IRS can reclassify distributions as wages and add payroll tax, penalties, and interest.
This matters a lot in tech, where it is common for one founder or a small group to generate a large revenue run rate. For example:
- Solo software developer doing 600,000 in S-Corp revenue and paying themselves 40,000 in salary
- Small UX agency with 1.2 million in revenue where the main owner takes 50,000 in salary and the rest as distributions
Those salary levels might be too low compared to the market. You do not need to pay yourself a Silicon Valley senior engineer salary if you live in a lower-cost area, but you also cannot ignore it.
A more grounded approach is to look at online salary data, your role mix, and your hours, then pick a number you can defend. It might not be perfect. The key is that it is real, not made up to just avoid tax.
Urgent steps if you think you are underpaying yourself
If you suspect your salary is too low for the last year or two, you still have options. Waiting and hoping is probably the worst strategy, because the IRS can go back and adjust prior years.
You can quickly reset in a few ways:
1. Adjust current year payroll
This is often the simplest fix. If your year is still open, you can:
- Increase your W-2 salary for the rest of the year
- Add year-end bonuses that run through payroll
- Match your distributions and salary to hit a more balanced ratio
Is there a perfect ratio? Not really, and anyone who gives you a universal number is oversimplifying. For some tech S-Corp owners, a 50 / 50 split between salary and distributions makes sense. For others, payroll needs to be a larger share.
2. Reclassify some distributions voluntarily
If you already took a large amount of distributions and a low salary, you might reclassify some of those distributions as wages before year-end and run them through payroll. That can reduce your risk if your numbers are extreme.
You will pay more payroll tax this year, but it is often better than an IRS adjustment plus penalties later.
3. Fix your documentation
Even if your numbers are not terrible, weak documentation can hurt you in an audit.
At a minimum, you want to have:
- A written salary policy or memo describing how you chose your pay
- Printouts of market salary data for your role and region
- Board minutes or a note from your accountant about salary changes
If you can show a logical process for how you set your salary, you are already ahead of many S-Corp owners who treated it as a guess and forgot why they picked the number.
Quick tax wins S-Corp owners often miss
When tech people ask for “urgent tax help”, they usually mean one of two things:
- “My bill for last year is huge and I want to lower it fast.”
- “I am afraid next year will be worse and I do not feel ready.”
You cannot change every past decision, but there are some common areas where S-Corp owners leave money on the table.
Retirement contributions through the S-Corp
S-Corp owners sometimes stick with a basic IRA they opened years ago. That is fine at the start, but once your profit grows, you have better options.
Two common setups:
- Solo 401(k)
- SEP IRA (less flexible around salary vs distributions)
With a Solo 401(k), you can contribute both as the employee and as the employer. The employee side depends on your W-2 salary, which is another reason proper salary planning matters. The employer side depends on your S-Corp profit.
For high-income S-Corp owners in tech, a Solo 401(k) can allow contributions that are much higher than a standard IRA, especially when your salary is structured well. This can reduce current-year taxable income, which is useful if you expect this to be a peak year.
Health insurance and HSAs
If your S-Corp pays for your health insurance, the way it is handled on payroll and the return can affect your tax result.
You can:
- Deduct premiums as an above-the-line deduction, subject to rules
- Use an HSA if you have a high deductible plan
Many tech S-Corp owners either forget the HSA option or treat health insurance separately instead of making it part of their tax plan. A few thousand dollars of HSA contributions each year are not glamorous, but they add up.
Home office for partly remote S-Corp owners
If you have an S-Corp and you work from home part of the time, you cannot just take the simple home office deduction that a sole proprietor does. The S-Corp structure changes the path.
Usually, your S-Corp reimburses you for your home office expenses under an accountable plan. This is a written policy where you submit an expense report to your company.
For tech work that is mostly remote, this often covers:
- Part of your rent or mortgage interest
- Utilities
- Internet costs
- Office supplies or furniture
This can be awkward to set up the first time, but once it is in place, it runs like a normal internal process. You should have documentation for the square footage and the calculation you use, in case anyone asks later.
Tech-specific issues that make S-Corp taxes messy
Not all S-Corps look the same. Someone running a dental practice has different tax issues from a software contractor managing several clients, or from a small AI product studio building and selling digital tools.
Tech brings some specific wrinkles.
Multiple income streams
Many tech S-Corp owners have mixed income types:
- Contract development work
- Advisory or consulting fees
- Course sales or digital products
- Affiliate or subscription income
Some of this might live in the S-Corp. Some might still be in a sole proprietorship or a separate entity. This increases the risk that you will either double count or miss expenses.
Centralizing as much related activity as possible into the S-Corp, with clean bookkeeping and separate bank accounts, tends to reduce confusion. It also helps you decide how much of your income depends on your own labor vs assets like software or content.
Equity, stock options, and RSUs
If you came from a salaried tech job, you might still have unvested RSUs, stock options, or longer term equity incentives, on top of your S-Corp activity. The tax timing on those can be completely different from your business income.
This is where many people get a painful surprise. A big RSU vesting event can spike your income in a single year and push you into a higher bracket, affecting not just federal tax but phaseouts, credits, and more.
When that overlaps with a high S-Corp profit year, you might end up overpaying because your planning was built around a lower income level. You might have:
- Skipped retirement contributions that could have been larger
- Mistimed major deductions or equipment purchases
- Underpaid estimated taxes, leading to penalties
I have seen engineers and founders who did everything right on their product and users, but skipped even a basic tax projection. The cost of that oversight can be tens of thousands of dollars or more.
Software and R&D expenses
Tech S-Corps often have significant development expenses. This might include:
- Contract engineers
- SaaS tools
- Cloud infrastructure
- Prototyping costs
Some of these are plain operating expenses. Others might qualify as research and development costs that need to be treated in a more complex way, depending on current tax rules. The details have changed several times, and the treatment of software development costs is not static.
If your S-Corp spends heavily on development, it is not enough to call everything “software” and move on. The tax treatment can impact when you get the deduction and how it shows up on your books. This is one area where I think trying to do everything yourself inside a spreadsheet is risky once your numbers grow.
Year-end triage when your tax deadline is close
You might be reading this with a deadline in mind. Maybe your extension is about to run out. Maybe your estimated taxes are due soon. That is when you need a sort of triage checklist, not a hundred-page overview.
1. Get your books current, even if imperfect
You cannot plan with missing or messy data. You might not have time to perfect every category, but you need the basics:
- All bank and credit card transactions for the year in your accounting system
- Clear separation between personal and business accounts
- A simple profit and loss report for the year
If something is unclear, mark it, move on, and come back if time allows. Waiting until your books are perfect is one way to blow past a deadline.
2. Estimate your current-year tax bill
Even a rough estimate is better than guessing. From your S-Corp profit, consider:
- Projected salary vs distributions
- Retirement contributions you can still make
- Major expenses that have not been recorded yet
Then blend that with your other income, like spouse wages or side jobs, and plug it into basic tax software or a calculator. This will not be perfect, but it shows if you are underpaying by 5,000 or 50,000.
3. Look for actions you can still take before year-end
Some tools are still available late in the year. For example:
- Run an additional bonus payroll if your salary looks too low
- Make retirement contributions aligned with your plan and limits
- Prepay some legitimate business expenses, where allowed
- Reimburse home office or mileage under an accountable plan
Each move needs to fit your actual situation. Piling on deductions that are not real, or creating fake expenses, is not clever planning. It is just fraud, and the IRS is not blind to tech people trying to “hack” the system.
When you should stop doing this alone
I think there is real value in understanding your taxes. Blind trust is not a strategy. But S-Corp tax planning for high-income tech owners has enough moving parts that at some point, doing everything yourself is not saving you money. It is just increasing your risk and stress.
Signs you should bring in a specialist:
- Your S-Corp profit is consistently above 200,000 per year
- You mix W-2, S-Corp, equity, and other investments in the same year
- You have employees or contractors in multiple states
- You feel dread when you think about the next filing season
A good CPA or tax advisor does more than fill in forms. They help you build a simple structure that you can run during the year, then handle technical details when the rules change or something unusual happens.
You do not need weekly meetings or long reports. In many cases, one solid planning session late in the year plus regular check-ins is enough. If the advisor cannot explain things in plain language or keeps pushing generic packages that do not match your business, you can say no and look for someone else.
Common mistakes S-Corp owners in tech regret later
Looking back over different cases, some patterns keep showing up. None of these are dramatic, but together they cost real money.
Ignoring estimated taxes
When your income jumps, waiting until April to see what happens is not a good idea. S-Corp owners need to pay quarterly estimated taxes. If you pay too little, you can get hit with penalties, even if you pay the full amount by the final due date.
This is especially common for people who left a W-2 tech job, started an S-Corp, and are used to payroll withholding covering everything. Once you are on your own, you need to plan those payments yourself.
Lumping personal and business spending together
Using one credit card for both business and personal transactions creates chaos. It is not that the IRS bans it outright, but it makes audits and bookkeeping harder.
For tech S-Corp owners who buy a lot of tools, subscriptions, and hardware, this hybrid approach leads to missed deductions and messy books. Opening a dedicated business account is one of the easiest fixes you can make.
Waiting too long to switch from an LLC to S-Corp
Some tech founders stay as a single-member LLC or sole proprietor during the early years. That can be fine. But when net income rises, they keep the same setup and lose potential savings from the S-Corp structure.
It is not that an S-Corp is magic. It just offers more control over salary and payroll taxes. There is a point where the administrative overhead of an S-Corp is worth it. If you blew past that point two years ago, you might be overpaying now.
Using tech tools without letting them run you
Since you are likely comfortable with software, it is easy to go all in on automation: accounting systems, payroll, receipt tracking, tax software, dashboards, and so on. These tools help, but they do not replace judgment.
You might have noticed this in other areas. Automation is great until one assumption is wrong. Then the system quietly multiplies the error.
For S-Corp taxes, you want tools that:
- Import your bank and card data cleanly
- Label transactions consistently based on simple rules
- Let you see a basic profit and loss any time
- Integrate with payroll without strange workarounds
What you do not want is a tool that promises everything but locks you into a setup that only the sales team understands. If your accountant sighs when you mention your current software stack, that is often a signal that a simpler setup would be better.
A short Q&A to close things out
What is the quickest step I can take this week to improve my S-Corp tax situation?
Get a clean, current profit and loss report for the year from your bookkeeping system. Even if some categories are rough, you need that baseline. With that in hand, review your salary vs distributions so far and see if the ratio looks reasonable given your role and income level. You can adjust payroll for the rest of the year if needed.
Is an S-Corp still worth it for tech professionals with high income?
For many high-income tech professionals, an S-Corp still helps, especially when profit is well above what a normal salary would be. The savings often come from lowering exposure to self-employment or payroll taxes on part of the income. But if your salary is already close to your total profit, or your admin burden is high, the benefit might be smaller. You need actual numbers to decide, not a generic rule.
How often should I meet with a tax advisor if I run a tech-focused S-Corp?
Once a year is usually not enough if your income is volatile or growing quickly. A good pattern is a detailed planning meeting in the second half of the year, plus short check-ins when big events happen, such as new contracts, entering a new state, or major equity events. If your situation is simpler, a smaller version of that schedule can still work.
What if I am already behind and worried about penalties?
Then you probably need to stop guessing and get a real estimate of what you owe, including late payment and underpayment charges. From there you can decide whether to pay in full, set up a payment plan, or adjust your upcoming estimates. The earlier you address it, the more options you tend to have. Ignoring it until an IRS notice arrives usually makes things worse, not better.