View Full Version : How do I pay myself?
02-03-2002, 05:14 PM
I know this sounds dumb, but I have been in business for over a year and have not paid myself yet (Thank God my wife is a nurse!). I have no employees just myself. The business is a soleproprietorship. I use QuickBooks Pro for the books. I guess what I need to know is what account type, tax line etc.. should I use. In general any help will be much appreciated.
02-03-2002, 05:36 PM
I'm no accountant, so don't take my word. But as a sole propiertorship there is no distinction between your salary and the profit from the business. Further, you have to pay social security (or self employment tax) on your profit, which you would not have to pay if you were a corporation (e.g. Sub S).
Talk to your accountant about the right time to make the change. My recollection is that as a rule of thumb, once you are consistently making more than about $20,000 a year in profit/salary, it would be a good time to consider incorporating. Until then, the additional business expenses may not be necessary.
The goal is to pay yourself first. The structure for a corporation will allow you take draws on profit without paying the Soc. Sec tax as a part of your income/compensation. Say you pay yourself $30,000 annually through payroll, you might then take another $10,000 draw to supplement your income. You still have to pay income tax, but you don't have to pay the soc. sec tax. Be careful, as you don't want to reverse those numbers. The IRS will allow you a 'reasonable' amount in draws, just don't throw up red flags.
Bascially, talk to your acocuntant about how to handle this. As a SP, you're going to have a tough time saving money, or pulling it out of the business without paying extra taxes on it. As a SP - your often looking to buy everything you can to break even so as to not pay taxes. Pretty tough to get ahead doing this.
02-04-2002, 10:27 AM
As you probably know, you pay tax on the profits whether you take any money out of the business or not.
I would suggest setting up a weekly pay amount to take out as a draw. You might also consider putting a percentage of this in a savings account for quarterly taxes (or writing a separate check) so that you don't wind up owing a ton of tax at April 15.
Your "salary" is not tax deductible, so the tax line does not matter. If you are using Quickbooks, set it up as an account called Drawing or Owners withdrawals in the equity section.
02-04-2002, 10:41 AM
Well I found out one good reason to be a SP- - -my wife's attorney got the bright idea that she could get my soon-to-be-ex wife half the biz profits. That is, til I reminded the b!t@h that as a solo SP if I stay in bed all week, or decide to fly "under the radar", half of nothing is still nothing lol...
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