Can I Pay Myself As A Small Business Owner?
Everybody remembers the first time they ever got paid for a service rendered. That feeling of excitement and joy washing over you as you grab your paycheck with tight fists. Is the feeling ever the same when you pay yourself from the profits of your small business?
It sounds weird when you think about it. But as a small business owner, after a long time spent to plan and bring your business to life, it is totally okay to reap from your hard-earned labor by paying yourself.
In this article, we’ll explore how you can pay yourself from the proceeds of your business.
How to Pay Yourself from Your Own Business
If you’re a small business owner, below are the various steps you can take to pay yourself from your business.
Find out your business type
Figuring out your business type is the first step to create the basis for how you want to be paid. There are small business types available, and it is best you know how each of them operates.
- Sole proprietorship. This is typically how small businesses and startups are operated. This is a business owned by you and you alone. This typically means you have total control over your business, including your profits, expenses, and debts. You alone decide the amount of cash you can pay yourself.
- This is a business set up by 2 or more persons. All the partners in this business setup must all agree on the salaries that will be paid. The expenses, profits, and losses must also be shared amongst partners.
- Limited liability company (LLC). This is a business type that incorporates parts of a sole proprietorship, a partnership, and a corporation. In this business structure, you are not responsible for the debts or liabilities accrued in the business. The business takes care of itself including your salary.
Once, you’ve decided on the business type your business falls into, it will further indicate the payment style for you.
Figure out a payment method
After figuring out how your business is set up, the next thing to do is to find out a payment method. This can be determined in two ways:
- By owner’s draw. A small business owner typically pays himself through the owner’s draw. The IRS sees owners of small businesses, partnerships, and LLCs as self-employed. This means you’re not going to get taxed at the point of withdrawals. However, you should pay taxes when you file your individual returns.
- By salary. A small business owner's salary is meant to be taxed by the state and federal government.
Select your payment amount
The next step after determining your payment method is to ascertain how much you’re going to pay yourself. You should decide on an amount that is deserving and not over the top figure.
You need to determine the net profit of your business and ascertain your pay from it and not from the total revenue.
One good way to ascertain a reasonable amount is to figure out how much you’d likely get paid for your duties if you were working a similar role in another business.
Select a payroll schedule
With everything in place, a crucial step is deciding when to pay yourself. Typically, it could be weekly, every two weeks, or monthly. You should select a payment schedule that will suit you.
The final and most important step is to get paid for your efforts in running your small business. You can do this by depositing money from your business account to your personal account. You can also opt to write yourself a check to cash later at your bank.
Paying yourself as a business owner should be done right. These easy-to-steps will set you up just fine.
- Jordan VanMaanen