Paying yourself

Discussion in 'Business Operations' started by Aaron Marshall, Mar 8, 2005.

  1. Aaron Marshall

    Aaron Marshall LawnSite Member
    Posts: 136

    Hey guys, just curious, how do you pay yourself? I do know that the more money I keep in the business the more I can use for write offs, but what about bills that I have personaly that have nothing to do with the business, or what about cash to do something as simple as going to the movies, etc? I have seperate checking accounts but last year found myself just paying for everything with the business account and that makes tax time a nightmare. I just got peachtree accounting and I'm wondering... do I put myself on payrol or what? I've had accounting courses and I don't see anything in my notes or books on it. Just to note, I am sole proprieter with no employees. Thanks for your help!
    Aaron
     
  2. Gregs Lawncare

    Gregs Lawncare LawnSite Member
    Posts: 6

    Aaron,

    As a sole proprietor, you do not set yourself up on payroll. You simply write yourself a check and it is considered a draw from your business (no tax consequence). However, you should be making quarterly estimated tax payments to Uncle Sam. These are based on your prior year's tax liability (you should pay in 100% of your previous year's tax liability in order to keep from paying a penalty for underpayment).

    Never spend money on a business just to get a tax write-off. It doesn't make since to spend $100 to get a $30 tax deduction. If you neeeeeed to spend money on your business to grow or become more efficient, then, by all means spend the money. But, don't do it just to get a "write-off".

    I hope this helps. If you have more questions, let me know.
     
  3. Aaron Marshall

    Aaron Marshall LawnSite Member
    Posts: 136

    Thanks for your reply, I'm still a little foggy though, sorry... So I write myself a check and list it as an expence then? And Income tax gets based on just my business, and not me (since they are kind of the same thing)? Sorry I'm a little slow on this... thanks for your imput!
    Aaron
     
  4. DJ Contracting

    DJ Contracting LawnSite Senior Member
    Posts: 487

    If your are operating as a DBA (doing business as) the you can write a check out for yourself with out taxes because you are already paying 27% self employment tax. Now if you are Incorporated then you may have to put yourself on payroll, like i do with my 3 businesses i charge them office rent and any other thing i can come up with.
     
  5. JohnsonLawn

    JohnsonLawn LawnSite Senior Member
    Posts: 400

    Aaron, as a sole proprietor, you are the business. So if you have $10,000 grand profit for the year, that is what you pay taxes on. Whether you take $1.00 for a draw or $9999.00 as a draw. The profit is considered your money in Uncle Sam's eyes.Just be smart about putting money aside for your quarterlies, repairs, equipment upgrades, etc. I know you need to make a living, but there is nothing worse than needing to dip into your business account for an unexpected expense and finding out that you have been writing yourself to many checks. I usually go easy through the year and will write myself a bonus draw at the end of the year when all the bills are paid. Use a decent amount on equipment upgrades also. Be smart and good luck
     
  6. DaLLa$

    DaLLa$ LawnSite Member
    Posts: 22

    Writing yourself a check is not considered a business expence. Writing some one that works for you a check is considered a business expence.

    Now as far as paying your self........I personally have 2 different accounts. I have a personal account and a business account. My personal account is free but I pay around 25.00-35.00 a month for my business account. I use my business account for business transactions only. I pay my self once a month out of the business account. I use microsoft money business edition to keep up with all of my spendings. Its a really nice program cause I can categories all my expences the way I want and still have them on the correct line for my schedule C.
     
  7. Gregs Lawncare

    Gregs Lawncare LawnSite Member
    Posts: 6

    and costly too. As an accountant, I hate it when people write all kinds of checks out of their business account for personal stuff. It would be much easier to "account" for a single $2,500 check a month written to you and you deposit that into your personal account. Then, you don't have to get numerous calls from your accountant asking whether or not an expense is business or personal. And, it won't take him as long to do your return and that's money in your pocket.

    As a sole proprietor, a check written to yourself is simply a reduction in your captial account, not an expense.

    Greg
     
  8. newleaflandscape

    newleaflandscape LawnSite Senior Member
    Posts: 348

    I used to write personal checks out of my business accounts all the time. Just record it as "owners draw" As long as you keep track of it, it doesnt matter. End of the year you just dont write off what you took out.
     
  9. Aaron Marshall

    Aaron Marshall LawnSite Member
    Posts: 136

    Now that all makes sence... thanks so much for all of your replys guys! The fog has lifted :blob3:
    Happy mowing season to you all! Thanks again.
    Aaron
     

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