RedHub AI
How the gate works
How the Owner-Pay Defensibility Kit works
This tool grades whether the salary an S-corp owner pays themselves is defensible against the market wage they supply — and whether the distribution is even safe to pull. It scores 6 weighted controls into a 0–100 number — then a gate that can only make the verdict worse.
The 6 weighted controls
Two overrides can only make the verdict worse. The reclassification gate: a zero salary against a real distribution, or a salary below half the market wage you set for your own role, forces RECLASSIFICATION RISK regardless of the score — the documented patterns courts reject. The cash override: if the draw breaches your tax reserve, drops cash below your working-capital floor, or breaks S-corp proportionality, it forces DO NOT DISTRIBUTE, superseding the tax verdict — a defensible split is irrelevant if the business can't afford the draw.
Why: The classic trap: a $30k salary against a $150k distribution on a one-person service business valued at $120k. The split scores 22 on the six weighted factors — no documentation, a draw four times the salary, service-heavy receipts — so it already reads RECLASSIFICATION RISK on the number alone. The reclassification gate independently confirms it: $30k is below half the $120k market wage. The cash override didn't fire here — the $150k draw still clears the tax reserve — so it stays RECLASSIFICATION RISK, not DO NOT DISTRIBUTE.
A high score didn’t save it. The score is context; the gate is the answer — and it names the one thing to fix first. Not tax or legal advice. Reasonable compensation is a facts-and-circumstances determination with no safe harbor and no IRS-approved ratio; this kit hard-codes no number and grades your split only against the market wage you supply. It is not a CPA opinion or an audit shield, sets no salary, and files nothing — have a CPA review and document your reasonable-compensation position; figures and enforcement posture change.