Paying Yourself from Your Business
Paying yourself from your business depends heavily on your entity structure and understanding the tax implications of your choice. This post gives you a few key points to remember, but call us as Ken-Mar Tax for more in-depth tax advice. A common question among business owners is how to pay themselves from their businesses properly. The correct method depends on your business structure, so I wanted to give you this quick guide to help you navigate this issue.
Paying Yourself as a Sole Proprietor or Single-Member LLC
- 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.
Paying Yourself as a Partnership and Multimember LLC
Partners cannot receive W-2 wages. Instead, they receive:
- guaranteed payments for services, taxed as income and subject to self-employment taxes
- profit distributions, which are generally subject to self-employment tax (except for passive limited partners)
Cash withdrawals are made through partner draws or profit distributions per the partnership agreement.
Paying Yourself as an S Corporation
- 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.
Paying Yourself as a C Corporation
The corporation pays taxes at a flat 21 percent rate. You can receive compensation in two ways:
- W-2 wages, subject to payroll taxes
- dividends, which are taxed twice—once at the corporate level and again at your personal level
Small Business Tax Services
As an expert in small business tax services and tax consulting Ken-Mar Tax eats, sleeps and breathes small business tax strategies. Being an enrolled agent allows founder, Ken Weinberg, to represent you to the IRS - something only a CPA, tax attorney and Enrolled Agent can do. EAs are the only federally licensed tax practitioners who specialize in taxation and also have unlimited rights to represent taxpayers before the IRS. It also means he is continuously being updated on the new IRS tax codes and taking classes from the IRS that provide guidance on how to file returns so that they are not "flagged."
When you get your taxes prepared by Ken Mar Tax you also have the option to purchase the Tax Audit Protection Plan to avoid the extra costs of paying for audit representation. If you are audited by the IRS, State of Ohio or local taxing authorities, Ken-Mar Tax will meet with the taxing authorities on your behalf to negotiate a settlement for you. The fee covers all costs up to the Appeals level, including up to 15 hours of correspondence with the auditing party – either the IRS, State of Ohio or locality.
