What You Need To Know Before You Pay Yourself
Is one of your goals actually being able to pay yourself from your business this year? If so, there are several things you need to keep in mind before you take money out of your business. (I apologize again to non-US readers as the following are options that are open to US-based businesses. To find out what’s allowed in your home country please check with a trusted tax expert familiar with the rules and regulations where you live.)
1. First of all, how you do or don’t pay yourself does depend on your business structure (LLC, S Corp, Sole Proprietor) so you will want to be sure to consult with an accountant before you take any money out of your business to ensure that what you’re doing is the most tax advantageous for both you personally and your business as a whole.
2. Keep in mind that many entrepreneurs don’t pay themselves from their business for several years as any money that is made by the business gets put back in to fund future operations. I was reminded of this last week while watching Shark Tank (my absolute favorite entrepreneur show to geek out to) when more than one of the millionaire hosts mentioned that they’d slaved over their businesses for years before taking a single cent out for themselves.
3. Repaying any loans that you personally wrote into the business when it started may be a way for you to take some of your money back out of the business with minimal tax implications. Again, you need to consult with a certified tax accountant or tax attorney before going this route!
4. Depending on the legal business structure you’re operating under (LLC, S Corp, etc) you may be able to take a draw which enables you to pull money out of the business from time to time but does not require that you take out regular paychecks. Again, you need to consult with a certified tax accountant or tax attorney before going this route!
5. Make yourself an employee of the business. If you’re working hard on your business and your business can afford it, perhaps it’s time to make yourself an actual employee of the business with a regular paycheck. Again, you need to consult with a certified tax accountant or tax attorney before going this route!
As you’ve hopefully noticed, a good accountant is worth their weight in gold in helping you maneuver the pros/cons/dos/don’ts of various payment options. You may also want to check out the IRS guide to paying yourself as a small business owner.