MARK KOHLERMain Street Professionals, Main Street Professionals, Main Street Professionals, Main Street Professionals, Main Street Professionals, LLC · Owner at Main Street Professionals, LLC

S-Corp Owners: This Salary Formula Changes Everything

11 Nov 2025 · 1 min

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1:08

In this segment, Mark Kohler introduces the "Kohler payroll matrix," a visual tool designed to help S‑Corp owners determine an appropriate payroll percentage based on the amount they draw from the business (treated as profit). The matrix plots owner draws on the horizontal axis, ranging from zero to increasing profit levels (e.g., $0, $50k, $100k, $150k, $200k). The vertical axis represents the desired payroll percentage, from 0% up to 100% (the latter being undesirable). Kohler explains that as the business generates more profit and the owner takes larger draws, the recommended payroll percentage should decrease, meaning payroll becomes a smaller share of total income. This inverse relationship guides owners to allocate a higher payroll proportion when profits are low and reduce payroll proportion as profits rise, ensuring compliance and tax efficiency for S‑Corp owners.

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Now, with the Kohler payroll matrix, we're going to be looking at profit. And to be more specific, it's actually draws. How much money are you taking out of the business? That's what really matters. So I'll just call it profit for now. Going to assume you're going to pull out all the profit out of your business. Now, as I said, the magic of the payroll matrix is coming up with a percentage to allocate to payroll. So down here on the bottom line, we are going to put your profit. How much did you make? And I'm going to assume how much you took out of your business. For you experts out there, we're going to really be focused on draws. We can call it profit for now to just make sense of it. So here would be a zero dollars, maybe it's 50 grand, 100 grand, 150 grand, 200 grand. Now this is again profit and it's going to keep going and going. So as you make more money, that's this line. Now on this axis is going to be the percentage of payroll. Where do we want to be? Well, it might start out here at zero, all the way up to 100% in payroll, which is what we don't want. So if we play this out, as you start making more money, your payroll is actually going to go down as a percentage of your overall income. So as your money goes, your payroll actually goes down as a percentage of your income.