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Hello, this is Tiffany Altekar with TAA Financial.

Many small business owners get confused about how much they should be paying themselves.
Here are some guidelines to follow:
How much should you pay yourself? Well, this depends on your specific situation and your business entity structure.

For Sole Proprietors, LLCs, and Partnerships, the net profits of the business are subject to Federal, State, and Self-employment taxes such as Social Security and Medicare tax.

Pay yourself through an owner’s draw by simply making a transfer from the business bank account to your personal bank account.

For Corporations, especially S-Corporations, you are required by law to pay yourself a reasonable W-2 salary for the work you perform.
Any Net Profits from the business distributed to the owners are not subject to self-employment tax.

It is more tax advantageous to pay yourself the least amount of salary possible within reason.
The AICPA recommends determining this reasonable salary by researching your job function within your industry.
It’s really important to have a trusted CPA who will walk with you through this process.

The IRS recommended source to determine a reasonable salary is the U.S. Bureau of Labor and Statistics. to research reasonable pay based on industry, trade, state, and Metropolitan area.

Other factors to consider in finding reasonable wages could include:
⦁ Training and experience.
⦁ Duties and responsibilities.
⦁ Time and effort
⦁ Comparable businesses
⦁ Compensation agreements.

I hope this information helps you to pay yourself correctly based on your business structure and to determine your own reasonable salary.

Please contact us if you would like to have a conversation about your tax planning needs.