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8 Replies Latest reply: Dec 30, 2008 5:46 PM by Gatorbaby RSS

How do I pay myself?

bizideaguy Newbie
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I opened a business about 2 months ago. I am an LLC and have 3 employees. I have spent over $20k in the last 6 months getting open so my taxes are going to show me coming in at a loss this year. I am getting to the point where I am getting enough sales to pay all my bills, so I would like to start drawing an income. I do have another job that I receive a w2 from so I am paying in to ss, fica, and fed. I plan to pay taxes annually because I dont know how much profit I really will make yet or if any. I am trying to figure our how to account for money spent that is not a business expense, and if I add myself to payroll, is that considered a business expense and keep my business from showing a profit? Any advice will be great I am trying to make sense out of all of this, thanks! -Casey
  • Re: How do I pay myself?
    bizideaguy Newbie
    Currently Being Moderated
    By the way I am in Florida.
  • Re: How do I pay myself?
    LUCKIEST Master
    Currently Being Moderated
    How do I pay myself, Welcome Casey

    If I was in your position I would do two things.

    First I would talk to an accountant. This is a good time before the end of the year.

    Second, I would talk to SCORE. SCORE is FREE both in person and online.

    Good luck, LUCKIEST
  • Re: How do I pay myself?
    Bridge Expert
    Currently Being Moderated
    Be mindful that an LLC is a legal structure, not a tax structure, hence the IRS does not recognize an "LLC". They will reclassify you as another type of organization for tax purposes.

    To avoid this, you can make the "right" elections yourself. You will probably want to file an election to be taxed as a "Corporation" and then ANOTHER election to be taxed as an "S" corp. This should give you the most flexibility. (Check with a good accountant about your specific needs)

    Generally, if your business is only going to show a small profit, you are probably better off not paying yourself a wage this year. You have to pay payroll taxes on wages - reducing your net income.

    As an "S" corp. all income is passed on to your personal return avoid the "double taxation" that can happen to "C" corps.

    They are numerous other posts on the board you may want to review.

    I would recommend getting a good small business accountant quick - it is easy to file the right forms but hard to undo if you start out wrong.

    Best of luck,
    Greg
    • Re: How do I pay myself?
      bizideaguy Newbie
      Currently Being Moderated

      How is an accountant actually paid? I am afraid of getting involved and paying for something I could do myself. I have always done my own taxes and I do payroll with Bank of America. Will an accountant dedicate time to explaining what I need to do for free? Thats partially why I am on this forum to find out some information. It appears everytime taxes gets brought up, you guys tell people to get an accountant. Is there any business owners that know how their business accounting works? Due to the nature of my business, the only active duty I have is the books! I do have an accountant that I talked with before I started the business, I just dont want to nag him and pick his brain full of questions if he isn't going to be doing all the work. Am I making sense or is that what he is there for? Thanks -Casey
      • Re: How do I pay myself?
        herculestex1 Newbie
        Currently Being Moderated
        the first time i would def get and pay for the accountant. then you wont feel guilty about nagging him that's what he is there for. write down everything you your friends your family, neighbors and pets and critters have to ask,, i'm exagerating a little. especially if you don't know all the ins and outs just yet. the longer your in the easier it becomes............you start to get you head above water, and your feet grounded. even if at the end you say to your self "i could have done that"..............at least next time you will feel confident about doing it your self.
        good luck<!--
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  • Re: How do I pay myself?
    eyeteam Newbie
    Currently Being Moderated
    You can go to www.smallbiztoolbox.info to answer your small business questions and needs that have helped me in all my small business needs when we needed them. There is a link to watch a presentation click on the watch movie link.
  • Re: How do I pay myself?
    Gatorbaby Newbie
    Currently Being Moderated
    I am also in Florida and am lucky enough that my father-in-law is an accountant. As a LLC, the State will consider you the same as a corporation for most things but you need to file form 8832 with the IRS. You are filing as a disregarded entity which is telling the IRS to "disregard" the fact that you have formed a company and allows you to file your taxes as an individual (sole proprietor) with a schedule "C" instead of a separate corporate tax return. If you have a partner, same thing but check that box. Much easier than all the extra paperwork required even as an "S" corp. The whole point of filing as a LLC is so you don't have to form a corporation or deal with all the filings required.

    I am not an attorney or accountant. This is just what I've done.

    I don't draw a salary but my husband does for insurance reasons. You will have to pay taxes on what you make whichever way you work it. If you pay yourself, it is a business expense but still taxable wage income to you. I think it's better to show more business profit for the purposes of business credit down the road. I take owner draws and there are some issues with payroll taxes that I still have to pay - this is where some google research would come in handy for you to make sure you comply with IRS rules if you don't want to pay an accountant. There are a lot of good articles out there written usually by someone at a University - just check the date and make sure it's current.

    Watch out if you do start to make a good profit and don't file and pay during the year. They will hit you with fines and interest if you end up owing taxes for the year. The best bet in the beginning if you're making some money is maximize your withholding at your regular job. Smaller paycheck might not be fun but you might not end up owing.

    Also, make sure you check out the worker's comp rules for your type of company with the State. Florida is strict and some industries you have to have WC insurance even for yourself if you don't file and get approved for an exemption.

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