If you work with solopreneur clients taxed as an S-corporation (S-Corp), you can use Gusto Pro's S-Corp Advisory Tools to model tax savings and estimate a reasonable salary on the Advisory tab — before you add the client to Gusto.
The Internal Revenue Service (IRS) requires S-Corp owners to pay themselves a reasonable salary for the work they perform before taking any distributions, and many clients also want to know whether electing S-Corp status is worth it.
S-Corp Advisory Tools gives you two calculators to answer both questions. You’ll enter a few details about your client’s revenue, role, and expertise, and each tool will generate an estimate you can walk through together.
You can use these two tools independently or together:
Tax Savings Calculator: Models the tax difference between staying a sole proprietorship or LLC and electing S-Corp status, based on your client’s expected revenue and expenses.
Reasonable Salary Calculator: Estimates a cost-based reasonable salary using U.S. Bureau of Labor Statistics (BLS) wage data, factoring in your client's role, location, time allocation, and expertise.
To run the Tax Savings Calculator, follow these steps.
From your Gusto Pro dashboard, go to the Advisory tab, and select S-Corp Tools.
Enter your client's business details, including expected annual revenue and expenses.
Provide an estimated reasonable salary. You can use the Reasonable Salary Calculator to generate this estimate.
Review the side-by-side comparison of estimated taxes before and after the S-Corp election.
Download a PDF of the result to share with your client as a starting point for the S-Corp election conversation.
Note: This estimate is a starting point, not a final number.
To run the Reasonable Salary Calculator, follow these steps.
From your Gusto Pro dashboard, go to the Advisory tab, and select S-Corp Tools.
Provide your client's role, location, expertise level, and any additional tasks they perform for the business.
Review the generated salary estimate, based on BLS wage data for comparable roles in your client's area, and use this as a starting point for determining reasonable compensation.
Q: What's the difference between a reasonable salary and distributions?
A: A reasonable salary is the regular pay your client gives themselves, and it's taxed like normal income. Distributions are profits your client takes out of the business — they're taxed too, but at a lower rate.
Q: Why does my client have to pay themselves a reasonable salary?
A: The IRS wants to make sure S-Corp owners do not pay themselves too little in salary just to save on taxes. Your client’s salary should match what someone doing their job would earn as an employee in their geographic area.
Q: Does my client have to pay taxes on distributions?
A: Yes. Distributions are still taxed, just at a lower rate than regular salary. For S-Corp owners, distributions are not subject to self-employment taxes (Social Security and Medicare), but they are subject to federal and state income tax. Electing S-Corp status can help your client save money — it does not mean they skip taxes.
Q: Am I responsible for the salary number the calculator generates?
A: The estimate is built on your inputs and a fully disclosed, cost-based methodology. The resulting figure reflects your professional judgment, and you remain responsible for it.
Important: The Tax Savings Calculator and Reasonable Salary Calculator are informational tools intended to support your professional judgment. They are not tax, legal, or accounting advice. You remain responsible for reviewing all inputs and outputs and for the advice you provide to your clients. Consult applicable IRS guidance and your firm's professional standards.