If you own a small business, congratulations! You’re one of 27.9 million small business owners in the U.S., making up 99.7% of employers in the country.
I love small business owners and work with them all of the time. Just recently, I took on some new clients, who changed the structure of their business and asked me if they should change the way they pay themselves. So this week, I want to talk about payday and how you should collect your paycheck. Here are some things to think about when it comes to your payday:
- PUT YOURSELF ON THE PAYROLL – If you are incorporated and are an officer of your business, the IRS says you must put yourself on the payroll. This means you need to receive a check regularly and withhold taxes, including Social Security and Medicare taxes. If your company is structured as a sole proprietorship or partnership, then payroll withholdings don’t apply. Instead you can pay yourself whatever you’d like, whenever you like. I don’t usually advise this approach because it’s hard to keep track of your company expenses.
- REASONABLE COMPENSATION – Are you paying yourself the right amount? The IRS says you should choose an amount that another business would pay someone to do your work.
- DRAWING EXTRA MONEY– In addition to collecting a regular salary, business owners can pay themselves or draw extra money. Keep in mind if you’re paying yourself a draw, you’ll have to pay taxes on that money too when it’s time to file your taxes.
- MAKE QUARTERLY PAYMENTS – If you’re doing well enough to pay yourself a salary and draw money from your company, then you may want to consider making quarterly tax payments on the money you draw. Ask your bookkeeper or accountant to do this, so you don’t face a hefty tax bill or even penalties at tax time. If your bookkeeper or accountant doesn’t know how, or doesn’t want to do these calculations for you, then call us at www.BrigadeBookkeeping.com and we will help you out.
I am proud to say my small business is growing every month. We are taking on new clients in South Florida and across the U.S., helping them figure out everything from pay day to payroll. If you need help with your pay check, give us a call and our team will be there for you.