# How Do You Go About Paying Yourself?



## AustinAirCo (Aug 21, 2015)

TxElectrician said:


> For those that don't pay themselves a salary, how do you set your personal budget?


If you are hungry, then get to work.

If you are not hungry, then find some work to make you so.

:laughing:


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## Spencer (Jul 6, 2005)

AustinAirCo said:


> In answer to the thread topic: I pay myself at the end of the year, sole proprietor with separate business and personal accounts, paid as owner draw -- no salary.


Is there a big tax benefit from doing one large draw? I know I have to pay myself a base salary before I can legally take the tax benefit of an owner distribution.


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## AustinAirCo (Aug 21, 2015)

Spencer said:


> Is there a big tax benefit from doing one large draw? I know I have to pay myself a base salary before I can legally take the tax benefit of an owner distribution.


To my knowledge there is no tax benefit if you are a sole proprietor. While I do the books and organizing for tax season I hand it over to a CPA in my state that is well versed in tax matters. 

I am also unaware of any benefit of a base salary + owner draw, distribution or whatever you want to call it. 

My understanding is that as a sole proprietor you pay tax on everything the same whether it's personal or business related. The tricky part is claiming deductions via expenses. This is why (in my opinion) you need to separate business from personal... is your business deductions may have to be proven at some point (audit). 

The main reason I pay myself at the end of the year is that I don't know what my business can afford to pay me from one year to the next. So once all bills are paid for the year and working capital is deducted from that then whatever is left over I take out as owner draw. 

The other reason is audit ease of proof. If I only draw once a year, it is a moot point easy to proven in 5 seconds worth of paper work as to what I have taken out of the business as profit --- that is all you are taxed on. It portends into every thing I do... KISS. 

Plus, what happens if you get some crazy "Trump Idea" and decided to start another sole proprietor business? If the first one is in shambles accounting wise this will never work. 

Hope for the best and plan for the worst. In my opinion an IRS audit will kill a sole proprietor run business. If there is smoke, you can bet they will start looking for the fire. 

Obviously, if your personal life dictates the need for a weekly pay check you won't be able to pull this off, but you should plan for it in the future.


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## AustinAirCo (Aug 21, 2015)

*Benefit of Salary + Draw*

Ok, I decided to Google this topic to see what I could find.



> If your company is legally structured as an S Corporation, you must receive regular paychecks with those same withholdings, but you also have the option of taking additional money beyond your salary in the form of a draw or distribution. Checks for draws and distributions are written without withholding the taxes that are taken out of a regular payroll check. Link from copy ~ paste


So this topic is well above my pay grade. Consult with a CPA or Tax Attorney. I would imagine that the draw you receive thru the S Corp the taxes would be paid by the recipient on the back end.


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## Spencer (Jul 6, 2005)

AustinAirCo said:


> Ok, I decided to Google this topic to see what I could find.
> 
> 
> 
> So this topic is well above my pay grade. Consult with a CPA or Tax Attorney. I would imagine that the draw you receive thru the S Corp the taxes would be paid by the recipient on the back end.


Definitely consult your CPA. I wanted to hit you up about this this morning but ran out of time. 

I save a lot of money by being an LLC filing as an S-Corp. The saving is even greater if you pull a lot of money/large salary out of your business. Basically you can save all the cost of FICA taxes on the money that exceeds what would be considered a base salary. That amounts to about 15.5%. You can easily be saving a few if not several thousands dollars plus a year simply by changing you filing status. 

You're throwing money away being a sole prop. You may want to find a different tax adviser if you've been in business this long and no one has advised you on this.


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## Builders Inc. (Feb 24, 2015)

I had my wife transferred from sole proprietor to s Corp. saved her 6 k in taxes the first year for her business. 


Sent from my iPhone using Tapatalk


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## Spencer (Jul 6, 2005)

Builders Inc. said:


> I had my wife transferred from sole proprietor to s Corp. saved her 6 k in taxes the first year for her business.
> 
> 
> Sent from my iPhone using Tapatalk



Similar story for me. Very good move switching over.


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## The Coastal Craftsman (Jun 29, 2009)

All this tax stuff makes my head spin. Talk about over complicated. Wells Fargo wouldn't do anything for my business because I was depositing work checks into my "personal account" problem was it was set up as a business account when I first come here and back then required no info from me. Problem recently was my business didn't exist as it had no EIN, business license, state paper work tied to the account so when it was set up correctly it was like I was a new business who just started banking with them. What a damn mess. They won't allow anyone now to use a personal account as a business account. There's laws stopping them from doing it now. 

Business accounts don't cost anything so silly not to have one.


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## Leo G (May 12, 2005)

They make it a hassle to transfer money from a business to a personal account. Use to be one sheet of paper, a transfer sheet. Now I have to write out a withdrawal sheet (check) and then deposit it in my personal account.


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## The Coastal Craftsman (Jun 29, 2009)

Leo G said:


> They make it a hassle to transfer money from a business to a personal account. Use to be one sheet of paper, a transfer sheet. Now I have to write out a withdrawal sheet (check) and then deposit it in my personal account.



Takes me 5seconds and it's instant. Do it through the app on my phone. Deposit the checks on the same app too.


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## SectorSecurity (Nov 26, 2013)

Even the cra has admitted they don't understand some of their own tax rules.

They really need to simplify it.

I hate how the cra gets to be judge jury and execuctioner.


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## ScipioAfricanus (Sep 13, 2008)

I pay myself every two weeks. I will call me into my office every payday to go over the last two weeks of work and have a conversation across the desk from me face to face so to speak.
I then berate my performance for the past two weeks (no matter how well I did) and tell me that I have to improve or I will not have a business anymore to be able to pay me.

I then produce a nice paycheck for me from the desk and with as much theatricality as I can muster explain how little I am making compared to me so that I will feel obligated to do a better job next pay period. I very often guilt the hell out of me as I think it is a real moral booster for me and makes me feel superior in all respects to my employee me.

Just a little technique I learned from by a$$hole of a brother.

Andy.


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## Calidecks (Nov 19, 2011)

I pay myself as much as possible and still get the job.


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## TxElectrician (May 21, 2008)

Leo G said:


> They make it a hassle to transfer money from a business to a personal account. Use to be one sheet of paper, a transfer sheet. Now I have to write out a withdrawal sheet (check) and then deposit it in my personal account.


Just set up for direct deposit, and it's there automatically.


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## noweare (Apr 6, 2008)

carp.addict said:


> I'm a sole proprieter as well, but my accountant told me not to waste my money on a business account, I just use my personal account for everything, and keep a log of payments in my books for reference.


That's just crazy. Keep your personal and business transactions separate.
Your business account will make it much easier to do your taxes, track expenses, and know how your business is performing.

Pick up a copy of quicken business and home and you can import your
business checking account and business Credit card info into quicken.
Then you can really stay organized.


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## AustinAirCo (Aug 21, 2015)

Spencer said:


> Definitely consult your CPA. I wanted to hit you up about this this morning but ran out of time.
> 
> I save a lot of money by being an LLC filing as an S-Corp. The saving is even greater if you pull a lot of money/large salary out of your business. Basically you can save all the cost of FICA taxes on the money that exceeds what would be considered a base salary. That amounts to about 15.5%. You can easily be saving a few if not several thousands dollars plus a year simply by changing you filing status.
> 
> You're throwing money away being a sole prop. You may want to find a different tax adviser if you've been in business this long and no one has advised you on this.


I did some additional looking at the S Corp thing. It sounds to me like the distributions are related to stock options. Where an employee like a CEO is paid part of their salary in stock and rather take the stock they take a cash draw / distribution. 

Then on the back end these funds are treated like Capital Gains. Which in effect is likely taxed at 20% currently. (could change) 

Currently I pay 12.4% in Social Security tax. But depending on how much I make and where my deductions fall this S Corp thing could save much more than 15% (if you fall in 25% bracket or higher.) 

The only problem I see with this is if you start paying yourself a salary and for some reason the business doesn't produce that, then you find yourself putting money back. I will certainly ask the CPA to see what he thinks about it. 

I have actually been looking at activities on the personal side of things to eventually take over so I can get out of this Government sponsored retirement stuff that may not exist when I need it anyway. Because it's common sense if you only have capital gains then you're only taxed at the capital gains rate... which is much less. 

Spencer, thanks for the information. :thumbsup:


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## Spencer (Jul 6, 2005)

AustinAirCo said:


> I did some additional looking at the S Corp thing. It sounds to me like the distributions are related to stock options. Where an employee like a CEO is paid part of their salary in stock and rather take the stock they take a cash draw / distribution.
> 
> 
> 
> ...



There are two ways you can go. An actual s-corp or an LLC filing as an s-corp. I'm the latter. It's easier to set up and easier/less expensive to file your taxes that way. A good CPA will be able to guide you but I'd do you due diligence to make sure they are leading you in the right direction.


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## AustinAirCo (Aug 21, 2015)

ScipioAfricanus said:


> I pay myself every two weeks. I will call me into my office every payday to go over the last two weeks of work and have a conversation across the desk from me face to face so to speak.
> 
> Just a little technique I learned from by a$$hole of a brother.
> 
> Andy.


You should never do this in front of yourself, because it's very embarrassing and leads to you becoming a disgruntled employee. :laughing:


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## AustinAirCo (Aug 21, 2015)

Spencer said:


> There are two ways you can go. An actual s-corp or an LLC filing as an s-corp. I'm the latter. It's easier to set up and easier/less expensive to file your taxes that way. A good CPA will be able to guide you but I'd do you due diligence to make sure they are leading you in the right direction.


Probably the LLC route. I will certainly take a longer look at it. Thanks.


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## Leo G (May 12, 2005)

TxElectrician said:


> Just set up for direct deposit, and it's there automatically.


So how do I go about getting my clients to do a direct deposit for me....:laughing:


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## A&E Exteriors (Aug 14, 2009)

I'm supposed to pay myself?


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## Leo G (May 12, 2005)

No. You're suppose to pay me. :smile:


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## blacktop (Oct 28, 2012)

A&E Exteriors said:


> I'm supposed to pay myself?


I was thinking the same thing :blink:


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## AustinAirCo (Aug 21, 2015)

Leo G said:


> No. You're suppose to pay me. :smile:


Yeah, get the payment up front and in cash. :laughing:


Hesitates while holding bills up to light to see if they're counterfeit or not...


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## TxElectrician (May 21, 2008)

Leo G said:


> So how do I go about getting my clients to do a direct deposit for me....:laughing:


Take credit cards


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## 1985gt (Dec 10, 2010)

I have a stack of checks to sign sometime between Wednesday and Friday every other week. Sometimes there is one with my name on it, sometimes not. I sign the rest. I make around $10 for every 40 hours worked, sometimes I even dock my own pay for insubordination.


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