Getting Paid:

How to Pay Yourself as a Small Business Owner

You’ve built your business, and now it’s time to enjoy the rewards. But how exactly do you pay yourself? It all depends on your business structure. Here’s how to do it:

 

1. Sole Proprietorship:

How You Get Paid: Take an “owner’s draw”—a simple transfer from your business to your personal account. No paychecks, no fuss.

Tax Time: You’ll pay self-employment taxes on your business profits when you file your personal tax return.

 

2. Partnership:

How You Get Paid: Like a sole proprietorship, you can take an “owner’s draw” based on your share of the business. Your partner does the same.

Tax Time: Each partner reports their share of the profits and pays self-employment taxes. It’s all about splitting the pie fairly.

 

3. Limited Liability Company (LLC):

Single-Member LLC: Pay yourself with an “owner’s draw,” just like a sole proprietorship.

Multi-Member LLC: Share the profits and take your “draw” based on your ownership percentage.

Tax Time: Your LLC’s profits flow through to your personal tax return, and you pay self-employment taxes.

 

4. S Corporation (S Corp):

How You Get Paid: Put yourself on the payroll! Pay yourself a “reasonable salary” with taxes withheld, just like any other employee. You can also take a distribution from the profits.

Tax Time: You pay payroll taxes on your salary, but distributions? Those can be tax-saving gold.

 

5. C Corporation:

How You Get Paid: You’re an employee, so you get a salary. Plus, you might score dividends from the profits.

Tax Time: Your salary gets taxed like regular income, and dividends? They get taxed twice—first at the corporate level, then on your personal return. But hey, it’s all part of the game.

 

Pro Tips:

• Keep business and personal finances separate—it’s a must.
• Consult a tax pro to make sure you’re paying yourself in the smartest way possible.

 

Remember, paying yourself is more than just taking money out—it’s about balancing your personal needs with the growth of your business. Plan wisely, and enjoy the fruits of your hard work!