If you do not take a salary as a shareholder, and you are actively participating in your business, you dramatically increase your chance of being audited!

This is because, in 2009, the IRS made it clear that S Corporation shareholders (who are active participants in the business) are required to take a reasonable salary for their position. If they do not do so, such action will trigger an IRS audit.

Take note that although you reduce self-employment tax on the profits you earn in an S Corporation, you must still pay some self-employment tax in the form of payroll for officers. The relevant question is what constitutes a reasonable salary. I cover this topic in Chapter Three.