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Paying Yourself

One of the most common questions I am seeing lately is around paying yourself a salary. The right way to go about this depends on the type of business you have.

If you have a Single-member LLC or you are a sole proprietor, paying yourself is actually quite easy. You can simply write yourself a check from your business account or transfer the money. This is not considered an expense or wages. This is an owner's draw of the business's profit. There is no taxable event. All of the profits for the business are taxes anyways, so all you are doing is moving money from the the business account to your personal so you can spend it.

Never pay personal expenses out of your business account. This leads to confusion, hours in tax season and likely extra tax prep and accounting costs.

If you are an S Corp, however, this looks a bit different. One of the rules of having an S Corp is that you must pay yourself a reasonable salary. That actual figure will vary based on the business. The salary would be in the form of payroll, because as the owner of an S Corp, you are an employee of the business. That means this would be considered a salary and wage expense for the business. In addition, you would be required to pay the required payroll taxes and file payroll returns. This is a bit more complex, but can save money in taxes in the long run.

I will get into the upside of having an S Corp in a later post, but just know that the logistics of paying can look different based on your business structure.

When you are just starting out, there is no expectation that you will pay yourself weekly or even monthly. I think I took one payment in my first 9 months of business. It really depends how often you need to draw from the business. As much as possible, you should plan to reinvest your income back into the business when it is growing so that you can start scaling sooner. If you bleed the bank account dry every month, you may not have the funds you need to pursue new opportunities and investments.

I recommend working with your accountant to come up with tailored goals for your own income and salary.


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