7 Factors to Balance When Deciding Your Owner's Wage
Your optometry practice is a powerful asset that fuels your personal and professional goals. But, how do you determine the best way to pay yourself, especially if you’re an S-corp practice owner required to take a W-2 wage?
A common question I work through with practice owners is - how much should they pay themselves in a wage? And how should that change over time?
More Than Just Taxes to Consider
When your practice is taxed as an S Corporation, you take an income in two forms:
- Wages
- Profit Distributions
One of the big benefits of S Corps is that, while your wages are subject to employment taxes, your profit is not. That saves ~15.3% tax on the profit - a big incentive to keep your wage as low as possible.
But employment taxes aren't the only factor to consider. There are times where it makes sense to increase your wage for other planning opportunities.
Let’s quickly walk through seven key factors to keep in mind when setting your wage:
1️⃣ Cash Flow Sustainability
What can cash flow support? Especially if you’re cold-starting, avoid paying yourself too much too soon. Ensure your practice has enough operating cash to cover expenses and growth.
2️⃣ IRS “Reasonable Wage”
The IRS expects your wage to reflect what you’d reasonably pay someone else to do your job - clinical duties plus management responsibilities. Stay compliant, and consult your tax advisor!
3️⃣ Employment Taxes
Your wages are subject to employment taxes, and you pay both halves:
- Social Security taxes - 12.4% Up to $176,100 of wages
- Medicare taxes - 2.5% for all wages
The level of your (reasonable) wage impacts the taxes paid. There’s also the point of Social Security credit. The lower the wage, the lower your crediting toward a retirement benefit.
However, consider the way Social Security calculates your benefit at your full retirement age. It's trying to replace on certain percentages of your income.
In 2025 dollars, when calculating your benefit, Social Security is essentially replacing the following percentage of your average monthly wages from your earnings history (adjusted for inflation up to age 60):
- 90% of the first $1,226/mo
- 32% of $1,226–$7,391/mo
- 15% of monthly income over $7,391/mo
This year, once your annual wage is $103,404, you’re only getting 15% on each additional dollar of wages.
If you have a healthy savings rate and consistent habit of investing, then you may benefit from investing the extra wages yourself.
However, too often there isn’t enough saved for retirement over a career, and the owner may have been better off increasing wages and getting a higher Social Security benefit.
4️⃣ Qualified Business Income (QBI) Deduction
Higher wages mean lower profits, which directly affects your 20% QBI deduction, since this deduction is based on profit. Consider this carefully as part of your overall tax strategy.
5️⃣ Personal Financial Stability
Predictable wages help you budget personally, stabilize household finances, and streamline tax withholding.
This is an important point, as a main point of owning the business is to provide for your ideal lifestyle.
6️⃣ Retirement Plan Maximization
Your W-2 wages directly determine your retirement plan contributions, like profit sharing contributions to your 401(k) plan. Balance wages carefully to maximize your retirement savings.
7️⃣ Accurate Valuation and Profit Accounting
Artificially low wages inflate profitability on paper but can distort financial benchmarks and practice valuation. Accurately reflect your work’s value for meaningful, transparent financials.
Wrapping Up
Remember, setting your compensation isn’t just about taxes - it’s about aligning your wage with your broader life and practice goals.
Review your strategy annually with your financial and tax advisors, and adjust as your life, your practice, and tax laws evolve.
And if you want to learn more, check out this article I wrote for Independent Strong. I dive into more detail for each factor.
Questions? Hit reply - I read every email and love hearing from you.
Have a great weekend!
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