Hi...I see lots of questions about S-corps and some good responses, so here is a question I wonder if someone can answer. Suppose you have a start up company that is showing growth but not actually generating a consistent profit just yet.  Can "reasonable compensation" be adjusted for the actual amount left over to pay compensation. 

For example, with gross income of $100k, you spend 92k of it on expenses, including employees. 

With only 8k of profit, can you claim it is not reasonable to pay more than $5,000 to the shareholder?" Can you just take all 8k as salary and wait for the profits to go up? Are you too small to even think about changing a sole proprietorship into an S corp? 

This year, the profit might jump to 30k and the following years to an even higher level. But all i have seen on "reasonable" is those who make a lot classifying a small amount as salary and a large amount as distribution....in my case, there really isn't a lot left....yet! (But it is starting to work)