Q + A: How Much Should I Pay Myself?
Do you pay yourself a salary?This is something I was just chatting about with my online homie, Justine. Though I've been in business for myself for ten years, I've never officially paid myself a regular salary.So I was interested in this Q + A over on Business On Main. Particularly the A. :)Q: My business is almost a year old now and doing well, although it's still not turning a profit. How much should I pay myself, especially when the business is still running on money from investors and loans?A: As the owner, you can pretty much cut your own paycheck, barring some rules that kick in for certain business structures. The two driving factors to decide about pay are:1) Amount and frequency2) Method of paymentYou also want to balance business needs with your lifestyle and family demands. But always get your accountant’s advice, and then choose among these options:Salary or draw: Before setting up monthly or weekly wages, consider how you run the business. If you use your Social Security number to report business income, you can get paid directly. But if you’ve incorporated, how much you can draw depends on the kind of structure you chose. (See IRS guidelines on business structures and paying yourself.)Lump-sum bonus: Tax rules are roughly the same for a quarterly or annual bonus as they are for a regular draw. Just check with your accountant before taking a big reward, as you want to avoid triggering unwanted IRS attention.Dividend distribution: As a profitable incorporated business, you can declare a dividend and reward yourself with an annual amount. But if you’re a private company — that is, you haven’t sold any stock — distributing dividends throws up some challenges. Get advice before setting this up.
Continue reading about how much you should pay yourself and then c'mon back here to let us know what stage your business is in and if you pay yourself a salary.
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