I am shook!

How do you pay yourself as an owner of the business?

I mean, when I recorded this unedited TikTok video I did not plan on it blowing up on TikTok? I just pulled out my phone and snap a quick 15s video AND my oh my! did it got trending!!!!

LLC has different elections.

• Single member LLC

• Multi member LLC (Partnership LLC)

• S-Corp LLC

• C-Corp LLC

Single Member LLC

As a single member LLC you do not pay yourself a salary with a pay stub and payroll tax withholding. No no… You pay yourself an Owner’s Draw. Owner’s Draw that you set aside 15.3% for Self Employment Tax which covers your Social Security and Medicare. Then you report your end of the year Income in your 1040 schedule C.

How to calculate your Owner’s Draw?

My suggestion is look at your finances and take a portion for taxes. They say it’s safe to save 30% of your income for tax at the end of the year. Then look at your budget for Operating Expenses like Utilities, salaries for your employees, advertising etc. Whatever is left over is your Owner’s Draw. Actually I want to talk about paying yourself first (Profit First method) in another blog sometime. Watch out for it! :)

So here’s how it looks:

Partnership LLC

With Partnership LLC or also known as Multi member LLC you pay yourself what we call Partner’s Distribution. This distribution’s percentage depends on what your partnership agreed upon. So when it is time for you to distribute the wealth so to speak you calculate it the same way I mentioned above. Then divide the left over according to your percentage. Your portion then will be reported to your K-1.

So for example your agreed percentage is… Your’s 70% and your partner get 30% the computation would be:

Something to keep in mind when paying yourself with a “Draw” is that you should not make your business checking your ATM or your Business Credit Card your personal ATM! Set a schedule of when you want to get a draw. Once a week, monthly, quarterly and stick to that schedule.

S-corp LLC and C-corp

Shareholders in an s-corp or a c-corp does not get paid in “Draws”. Instead they are hired by the business they owned. You get a salary, a payroll with payroll tax withheld. You actually get a pay stub. And, are you ready for this? You can claim or get a dividend too! a percentage of the corporations income. How much dividends to take should be in your articles of incorporation. keep in mind that Dividends are exempt from payroll tax. But be careful with giving yourself a dividend that you are not going to get in trouble with IRS.

Something to keep in mind though is that corporation get’s taxed twice. What I meant by this is that your corporation pays income tax to IRS and you as the owner who get’s a payroll pays personal income tax to IRS.

Starting a Business

My suggestion for those wanting to start a small business is of course talk to a CPA or an Accountant. See if the type of business you want to open will benefit to start with S-corp. In my experience I started with Partnership LLC thinking that I want to be cute and make my husband part of my business as 50-50 ownership. But our tax people advised us to just start with single member llc and as we grow we can elect to be S-corp LLC. I wouldn’t benefit from partnership tax wise.

Also, something you need to think about is to make sure the foundation for your business is set. Have a business checking and credit card separate from your personal account. Proper accounting will help you have a proper financial planning for your business so you do not bleed out. Do not kill your dreams by not setting up properly.

I would love to hear from you. What type of business structure are you? How are you paying yourself?

Pin This!