{"id":17568,"date":"2024-10-09T23:15:06","date_gmt":"2024-10-09T23:15:06","guid":{"rendered":"https:\/\/heyerinc.com\/2024\/10\/09\/ralf-heyer-on-how-you-as-a-business-owner-pay-yourself\/"},"modified":"2024-10-09T23:15:06","modified_gmt":"2024-10-09T23:15:06","slug":"ralf-heyer-on-how-you-as-a-business-owner-pay-yourself","status":"publish","type":"post","link":"https:\/\/www.heyerinc.com\/blog\/2024\/10\/09\/ralf-heyer-on-how-you-as-a-business-owner-pay-yourself\/","title":{"rendered":"Ralf Heyer on How You as a Business Owner Pay Yourself"},"content":{"rendered":"
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I\u2019m watching in disbelief, like you, as I see the photos of the hurricane devastation keep rolling in. It\u2019s hard to believe so much infrastructure can be swept away that quickly. Our hearts are grieving for those who lost loved ones and homes and businesses from Helene.<\/span><\/p>\n

I\u2019ll keep you updated on any deadline extensions that the IRS makes available in the coming days \u2013 they usually do in situations like these.<\/span><\/p>\n

We\u2019d all like to make deadlines go away in good times, much more so in hard times. You\u2019ve never heard somebody say, \u201cI love a good deadline.\u201d They\u2019re demanding (and often bring on anxiety). <\/span><\/p>\n

But\u2026as your accountant, I\u2019m compelled to remind you about a big one coming up. <\/span><\/p>\n

If your business taxes are still on extension, and we\u2019re waiting on something to get yours finalized, October 15 is the submission deadline. Let\u2019s get everything finalized and wrap 2023\u2019s taxes up.<\/span><\/p>\n

Because you\u2019ve got to put your focus on some other aspects of your Southeastern FL business, like payroll. It\u2019s <\/span>your employees\u2019 favorite day of the week. <\/p>\n

As a business owner, the former thrill of payday as an employee is often overwhelmed by the anxieties and pressures of payroll and your business\u2019s expenses. Especially if you\u2019re struggling to pay yourself. <\/p>\n

It\u2019s important to know, if you\u2019re in that predicament, it\u2019s not an uncommon thing. A lot of business owners struggle to pay themselves (or pay themselves enough). According to this study<\/span><\/a>, most business owners pay themselves less than 100k annually, and roughly 30 percent of business owners don\u2019t even take a salary. <\/p>\n

But it doesn\u2019t have to be that way. If you\u2019re just starting out, business owner pay is a topic you\u2019ll want to make sure you think strategically about so you aren\u2019t just depending on the profits to take your cut.<\/p>\n

Getting paid is just as important for you as it is for your employees. Here\u2019s how you do it\u2026<\/p>\n

Ralf Heyer on How You as a Business Owner Pay Yourself<\/strong><\/span>
\u201cDon\u2019t be afraid to give up the good to go for the great.\u201d -J.D. Rockefeller<\/i><\/span><\/p>\n

You work hard as a business owner, probably harder than your employees, because this is your business. So, it only makes sense that you get paid for it. <\/span><\/p>\n

But if you\u2019re underpaying yourself in order to meet the demands of all your expenses and payroll, it\u2019s not necessarily the best way to go. Although you avoid IRS entanglement (more on that later), you end up hurting yourself, which inevitably hurts your <\/span><\/span>Miami Metropolitan <\/span><\/span>business. It\u2019s a vicious cycle. <\/span><\/p>\n

Mastering the delicate balancing act of business owner pay can be hard. But the good news is, figuring out how to pay yourself isn\u2019t impossible. It doesn\u2019t even have to be unenjoyable. You just need a grasp of which business owner pay method is right for you and a plan for executing it. <\/span><\/p>\n

Let\u2019s start with some business owner pay options that are often used:<\/span><\/p>\n

Salary<\/strong> \u2014 With a salary, you receive the same amount with each paycheck, just like an employee. Your employment taxes are withheld automatically. It\u2019s predictable and rigid.<\/span><\/p>\n

If you have S-corp, C-corp, or LLC taxes as a corporation (and actively work for your business), you must take a salary.<\/span><\/p>\n

Owner\u2019s draw \u2014 <\/strong>This option is typically used by owners of sole proprietorships, partnerships, and LLCs which are not taxed as corporations because it provides flexibility. You simply take money from your business\u2019s net profits by writing yourself a check or electronically withdrawing funds from your bank account. <\/span><\/p>\n

Don\u2019t forget: Self-employment taxes are not automatically withheld, so it\u2019s up to you to budget for and pay them quarterly.<\/i> A good rule of thumb is 30 percent of your net profits. This percentage varies depending on specific state taxes and your individual situation.<\/i><\/span><\/p>\n

Dividend \u2014 <\/strong>Dividends are payments made to shareholders from a company\u2019s profits. They\u2019re generally taxed at a lower rate than regular income (and are in general pretty tax-efficient). Owners of C-corporations or those who own shares in a company can receive dividends in addition to their salary.<\/span><\/p>\n

Profit sharing \u2014 <\/strong>With this option, business owners distribute a portion of the company’s profits to themselves and potentially their employees. This method can be highly motivating but requires detailed planning. Profit-sharing plans often involve formalized employee benefit plans, and how they are implemented will depend on your specific situation.<\/span><\/p>\n

So, how do you choose? <\/strong>Well, there are two considerations:<\/span><\/p>\n

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  1. Much of this will be decided by your business structure<\/strong>. Some structures are required to take a salary (see note above), but you can get a tax-friendly boost by tapping into dividends. For other structures, you can lean into an owner\u2019s draw or profit-sharing option depending on what\u2019s most beneficial for you. <\/span>
     <\/li>\n
  2. Your cash flow will also be a deciding factor<\/strong>. Is your business brand new, or do you have a steady cash flow established? Are you in an ebb-and-flow financial situation? Or have you been seeing cash come in like clockwork for a while? A salary with added dividends lends to a solid financial foundation. An owner\u2019s draw or profit-sharing setup is advisable if you\u2019re still trying to find your footing. <\/span><\/li>\n<\/ol>\n

    Then comes the question of deciding how much you\u2019ll pay yourself. Every business owner wants to know how to do this in a way that rewards your hard work but also doesn\u2019t strain the business. It\u2019s definitely a balance that can take time to land.<\/span><\/p>\n

    Here\u2019s a checklist you can start with:<\/span><\/p>\n