Paying Yourself as a Business Owner
The fact that you can pay yourself as a business owner is the most appealing feature of owning a business. You are not reliant on others to run the show or compensate you for your work, unlike in a corporate business structure.
This means you have the freedom to choose how much money you make as a business owner, how much work you put in, and how much you earn as a result of your efforts.
There are several advantages to owning and operating your own company. Still, the main issue you’re dealing with is how to pay yourself as a business owner. The sort of business structure you pick determines how you pay yourself as a business owner.
How Do I Pay Myself From My LLC?
A Limited Liability Company (LLC) is a business structure wherein the owners, also known as the members, are not personally liable for the company’s debts or liabilities.
Furthermore, the company pays the taxes and is considered a separate legal entity from its owners. For tax purposes, an LLC may be classified as a partnership or corporation or disregarded entity.
IRS does not consider the members of an LLC to be employees. Therefore, the members do not take a salary. Furthermore, there are two types of LLCs – single-member LLCs and multi-member LLCs.
How to Pay Yourself As a Business Owner in a Single Member LLC?
You can choose to pay yourself from an LLC in either of the following ways:
- Pay Yourself a Salary
The major benefit of paying yourself a salary, just like an employee, is that you have a regular income. Paying yourself as an employee is the most ideal option if a certain amount of income is important to meet your requirements.
So, the amount of salary that you pay yourself must be realistic. Hence, do your research in terms of the industry standards, the amount of work and the location of your business to determine your salary.
- Pay Yourself As a Member of an LLC
You would distribute the profits (or draw) earned during a fiscal year in case you choose to pay yourself as a member of a Multil-Member LLC. Accordingly, each member gets the percentage of their profits as per the operational agreement.
- Pay Yourself As an Independent Contractor
You can also work as an independent contractor for your LLC in case you have a specialized skill set that your business demands.
For instance, you can undertake graphic designing work for your business to make designs for your website and clients for your LLC.
Paying yourself as an independent contractor allows your business to stay within the budget.
Accordingly, you will have to pay self-employment taxes on your wages if you hire yourself as an independent contractor.
Silicon Harbor Business Services is based in Mount Pleasant, SC. We provide solid, practical advice to small business owners and select individuals. We work with Quickbooks Online, Quickbooks Desktop and Quickbooks Enterprise.
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