{"id":47724,"date":"2022-10-17T15:13:37","date_gmt":"2022-10-17T19:13:37","guid":{"rendered":"https:\/\/pslohio.wpengine.com\/uncategorized\/how-to-pay-yourself-small-business-owner\/"},"modified":"2022-10-18T14:28:51","modified_gmt":"2022-10-18T18:28:51","slug":"how-to-pay-yourself-small-business-owner","status":"publish","type":"post","link":"https:\/\/www.patriotsoftware.com\/blog\/payroll\/how-to-pay-yourself-small-business-owner\/","title":{"rendered":"How to Pay Yourself from Your Business"},"content":{"rendered":"\n

You know by now that running your own business doesn\u2019t mean you sit around as stacks of cash come flooding into your office. Being a business owner means being busy nonstop to keep up with operations. Since running a business is your full-time job, you need to know how to pay yourself from your business.<\/p>\n\n\n\n\n\n\n\n

If you own a business, how do you pay yourself?<\/h2>\n\n\n\n

How do small business owners pay themselves? It\u2019s a simple question, but different factors can determine your pay, like business structure, profits, expenses, and reasonable compensation guidelines. Learning how to pay yourself as a small business owner will require you to consider every factor.<\/p>\n\n\n\n

Business structure<\/h3>\n\n\n\n

The best way to pay yourself as a business owner will depend on your type of business structure<\/a>. You will either receive a draw or a salary.<\/p>\n\n\n\n

An owner\u2019s draw, or owner distribution, is a portion of the business\u2019s profits that your business distributes to you as your payment. A salary is a fixed amount that you pay yourself on a regular basis.<\/p>\n\n\n\n

How to pay yourself as a sole proprietor<\/h4>\n\n\n\n

As a sole proprietor<\/a>, you are the only owner of your business. Sole proprietorships are only taxed at the personal level. You and your business are considered the same legal entity, meaning you are liable for your business\u2019s liabilities. So, how do sole proprietors pay themselves?<\/p>\n\n\n\n

In a sole proprietorship, your compensation comes from a draw payment. You can take out as much as you want from your business\u2019s profits since you are entitled to all your business\u2019s money. According to the Self-Employment Contributions Act (SECA), you must pay self-employment tax<\/a> and estimated taxes<\/a> on your income. Attach Schedule C<\/a> to Form 1040, U.S. Individual Income Tax Return.<\/p>\n\n\n\n

How to pay yourself from a partnership<\/h4>\n\n\n\n

A partnership<\/a> is a business owned by two or more people. Partners are the same legal entity as their business, much like the tax entity<\/a> of sole proprietors. Partnerships are pass-through tax entities, meaning the owners are responsible for paying their share of taxes.<\/p>\n\n\n\n

How do partners get paid? If you are part of a partnership, you will take an owner distribution. Partners are considered self-employed, so you must pay SECA tax.<\/p>\n\n\n\n

To file taxes, attach Schedule K-1<\/a> (Form 1065), Partner\u2019s Share of Income, Deductions, Credits, etc., to Form 1040.<\/p>\n\n\n\n

How to pay yourself from an LLC<\/h4>\n\n\n\n

A limited liability corporation (LLC<\/a>) combines aspects of partnerships with corporations. Owners have shared tax responsibilities, but owners are not the same legal entity as their business. You must know how to pay yourself from an LLC:<\/p>\n\n\n\n

Single-member LLCs<\/strong> are disregarded entities<\/a> and treated as sole proprietorships. If you are a single-member LLC, you will receive LLC distributions from your business\u2019s profits. You must attach Schedule C to Form 1040.<\/p>\n\n\n\n

Multi-member LLCs<\/strong> are treated as partnerships. Each owner pays their portion of taxes. You and the other members of the LLC receive draws from your business\u2019s profits. You must attach Schedule K-1 to Form 1040.<\/p>\n\n\n\n

How to pay yourself: C corporation<\/h4>\n\n\n\n

In a corporation, the business is legally separate from the owners. Because of this separation, you have limited liability for the company.<\/p>\n\n\n\n

If your business is set up like a corporation and you are actively working for the business, you will receive a salary just like an employee. If you are not actively working for the business, you do not receive a salary. Instead, you will receive dividends. Taking dividends from your company means you are a shareholder.<\/p>\n\n\n\n

Corporations are double-taxed, meaning the business is taxed and the business\u2019s profits are taxed through each owner\u2019s income. You will be taxed as an employee and pay FICA tax.<\/p>\n\n\n\n

How to pay yourself: S Corp<\/h4>\n\n\n\n

An S Corp separates the company from the owners, like in a C corporation. You are not double-taxed if you are an S Corp, but you still have limited liability for the company.<\/p>\n\n\n\n

An S Corp owner can receive both wages and distributions. If you work in the company, you will receive a salary. The salary will be taxed like normal employee compensation. You will have FICA tax taken out.<\/p>\n\n\n\n

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Patriot Software is built for small business owners<\/div>\n \n

Here are just of the features Patriot offers:<\/p>\n \n \n