How to Pay Yourself from Your Business

This is probably one of the questions I get asked the most? How do I pay myself and pay the least amount of taxes? It does start by making sure you have set up your company with the most effective tax strategy from the get-go. If you haven’t, it’s not that difficult to make a transition, just make sure you have this in the works before the end of the new tax year.

Let’s start at the beginning by clarifying that it is best practices and so much easier on you and the professional handling your tax return if you set up a SEPARATE business account to deposit all income from the business. Checks, ACH deposits, credit card sales receipts, and any other income should all get deposited into this account.

Pay all the business bills from this account as well or with your no interest business credit card. Your bank should allow you to open up a credit card in your business name or allocate one personal credit card to use ONLY for business expenses. You can use points earned or cash back to reduce your business expenses for travel and other expenses. Do not make any personal purchases with the card. That way, you'll know that everything charged to that card is for the business. You should not co-mingle personal and business expenses for both the checking account and the credit card account. If you do by accident, make sure you pay back the business from your personal account for anything charged or paid for personal use as soon as possible.

As a sole proprietor or single member entity (LLC) (not operating as an S Corp), you can pay

yourself whenever you want (and the business income/profit allows). Ideally, you'll do this on a regular basis after first putting money away in a business savings account for tax purposes. In order to calculate that estimate, go to irs.gov and https://apps.irs.gov/app/tax-withholding- estimator/about-you. Fill out the estimator including self-employment tax calculation and make sure you are making the quarterly payments before you pay yourself. Remember as a sole proprietor or LLC, you will also have to pay Self-Employment tax. There are tax relief alternatives by becoming an S Corp or an LLC operating as an S Corp. See a professional to determine how to set up your company with this tax structure.

When you do pay yourself, you just write out a check to yourself for the amount of money you want to withdraw from the business and characterize it as owner's disbursement. Then deposit the check in your personal checking or savings account. Remember this is profit being withdrawn, not a salary.

Using an accounting program such as QuickBooks Online (QBO) to record all the deposits and withdrawals from the business checking account will also make it much easier at the end of the year to categorize your spending for tax purposes as well as help you budget for the next year and analyze your spending patterns. Doing so will let you see at any time what your profit (or loss) is at any given time making it much more effective to make changes quickly as needed during the year.

This is just a brief explanation of how to pay yourself if you are the only person in your business. For more detailed information, please contact Victoria DeBonis Fortin,

Vdebonis@validsolutionsconsulting.com or join my Private Group on Facebook – Women's Business Strategy Network.