A common question among business owners is how to pay yourself from your business correctly. The right method depends on your business structure, so this guide will help you navigate the best approach
Sole Proprietors and Single-Member LLCs
- You cannot be on payroll. Instead, you take owner’s draws as needed.
- You report net earnings on Schedule C of your personal tax return.
- You pay self-employment taxes (15.3 percent) on self-employment net income.
Partnerships and Multimember LLCs
Partners cannot receive W-2 wages. Instead, they receive:
- Guaranteed payments for services, taxed as income and subject to self-employment taxes, and
- Profit distributions, which are generally subject to self-employment taxes (except for passive limited partners).
Cash withdrawals are made through partner draws or profit distributions per the partnership agreement.
S Corporations
As an S Corporation owner, knowing how to pay yourself from your business is essential for tax efficiency.
- You must pay yourself a reasonable salary as an employee via W-2 wages, which are subject to FICA taxes (15.3 percent, split between you and the corporation).
- Any additional profits are taxed to you personally but can be distributed tax-free.
C Corporations
The corporation pays taxes at a flat 21 percent rate.
You can receive compensation in two ways:
- W-2 wages, subject to payroll taxes, or
- Dividends, which are taxed twice—once at the corporate level and again at your personal level.
Sterling Tax and Accounting is here to help your business with tax planning! Our comprehensive approach to tax planning helps reduce your overall tax liability and keep more money in your pocket. If all your accountant does is file your taxes, chances are they are making you pay more than your fair share of taxes.
Learn how to proactively save on taxes by scheduling a call with our tax planning specialists.
Our tax planning, accounting & business services help you stay on track. Sterling Tax & Accounting will work with you to optimize your business and minimize your taxes. We will work to provide you and your business with the tools and resources you need to build a solid tax and business foundation. We’re a trusted CPA Firm in Sarasota, Florida. We serve clients all over the US, and proactively work to minimize their taxes.
Welcome to the Sterling Standard of business! Want to learn more? Schedule a meeting with our tax planning team here: https://www.sterling.cpa/contact-us/
Learn how Sterling Tax & Accounting can add value to your business!
Your virtual accounting and technology experts providing back office, compliance & strategic solutions for busy professionals.