How to pay myself?

Discussion in 'Business Operations' started by kc2006, Jun 13, 2005.

  1. kc2006

    kc2006 LawnSite Silver Member
    Posts: 2,442

    I was thinking of this the other day and thought I'd ask here before calling my accountant.

    A family member had asked how I was supposed to go about paying myself, and if it is benefitial to pay yourself alot or little to get around taxes somehow.

    The business is an LLC and I'm solo. So is it benefitial to pay myself alot of the earnings or just take what I need from the business account weekly? Are there any benefits from different pay rates? Thanks
     
  2. marko

    marko LawnSite Senior Member
    Posts: 963

    I would ask you accountant. He knows your situation. There are many ways to get creative and he should know.
     
  3. bruces

    bruces LawnSite Senior Member
    Posts: 648

    It does not matter. Since you are a single person LLC you will be taxed as a sole proprietor. In other words, the income will be included on Schedule C on your personal income tax return. Any amounts you pay yourself are not a tax deduction. You will pay tax on the net income of the business, regardless of whether you pay yourself anything or not.
     
  4. nocutting

    nocutting LawnSite Senior Member
    Posts: 530

    Hi, I've never had a "Great Account", I've paid up to $175 an hour!!!!!!!!!!!! and I always feel that if I wasnt asking or telling them there job, I'd be out of Bizness along time ago!.........Now I get paid in monthly dividens, as a stock holder.......it works for me, but any alternative suggestions would also be welcomed.....As long as its legal,lol,lol,lol. :)
     
  5. LB Landscaping

    LB Landscaping LawnSite Bronze Member
    from Maine
    Posts: 1,309

    Not true, you can file an amendment with the IRS to be treated as an S-Corp for tax purposes. That way your pay is a deductible business expense even if you are an LLC.
     
  6. Team Gopher

    Team Gopher LawnSite Platinum Member
    from -
    Posts: 4,041

    <marquee loop="infinite" bgcolor="#DDDDDF"><font color="#000000">Have a tax question? Need free business advice? Ask our CPA. Click Here </font></marquee>
    Hi kc2006,

    If you still need assistance with this question, you can ask our CPA by clicking on the scrolling link above.
     
  7. mastercare

    mastercare LawnSite Senior Member
    Posts: 289

    If you are an LLC or Incorporated as an S-Corp you experience what is called "Pass through" taxes. This means that your business income is taxed at your tax rate, rather than a corporate tax table (C-Corp). So, there is no tax savings or expenses of doin it either way.

    Remember that a corporation is its own entity. But, you as the owner, still pay taxes at your own rate regardless of how much company profits go directly to you.

    Example 1: You leave all profits in "the company" and don't pay yourself a penny. At the end of the year, you calculate your personal income from other sources and add to it all net profits from your business since you own it outright. You're still taxed.

    Example 2: You pay yourself $20,000 per year out of the company checkbook. Now, your company gets to deduct that $20,000 as a payroll expense (which makes it appear as a tax savings). Now, since you were paid $20,000 from a company (yours) you have to claim that $20,000 as income on your personal taxes. So, you get to expense $20,000, and have to claim $20,000 of income, netting you no difference. In a DBA, LLC, or S-Corp, no matter where the money came from, it gets taxed at your personal rate.

    This would make it appear that it does not matter when or how you get paid, but there is a benefit to paying yourself. Corporations typically have limited liability. This menas that if your company gets sued, only your company's assets can be used to pay the lawsuit. If you pay yourself all (or most) of the profits in the form of a check, they are no longer company assets and can't be garnished by creditors or lawsuits. To take it one step further, be sure that if you are incorporated that you actually physically write yourself a check. Don't just take it out of your company's bank account to pay your personal bills. The reason is that the company's $$ and your $$ need to be 2 separate things. If you were ever sued, and the accuser can prove that you use the company's money as personal money, they can also hold you personally accountable in the lawsuit, and claim that you are only using a "corporation" to hide your liability, when in fact, your company's $$ and your $$ are one and the same. It's easier to just go to the ATM and pull out money when you want, but if you're ever sued YOU NEED TO PROVE that you are an employee of the company, and recieve a paycheck in order to separate yourself from any liability claims.

    Hope I have enlightened some of you!
     

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