Many small business owners will often have a hard time paying themselves regularly, with many thinking that they only have to pay themselves only when the business has a surplus.
While this could be okay when the business is starting, once it begins to mature, you need to learn how to pay yourself. Here are some tips on how to do that.
Choose your business type
The first thing to do before deciding to pay yourself is to determine the structure of your business if you haven’t already. The business structure, whether it is a partnership, sole proprietorship or corporation, will then determine the basis of all payroll decisions.
A correct business structure will save you thousands of dollars in taxes as well as help avoid audits by tax authorities.
Decide on ways to pay yourself
When running a business, there are two ways in which you can pay yourself. One is by giving yourself a regular salary. The other way is the owner’s draw, which means drawing money from the business as needed.
Each has its own advantages and disadvantages. Find out which is best for your business before settling on one.
Determine how much to pay yourself
Once you settle on how you want to pay yourself, it is time to settle on the amount.
You can check popular job sites for job posts similar to the one you play in your business. You can then find salary comparison tools to help gauge how much you are worth.
Also, check on whether you classify yourself as an employee or nonemployee. If it is a sole proprietorship or partnership, any amount will suffice. However, if it is either an S-Corp or C corp, you will pay yourself with regard to taxation laws.
Set the pay frequency
A consistent pay to yourself helps keep the process organized, even though, as a business owner, you can pay yourself as often as you’d like.
If you classify yourself as an employee, then you should pay yourself in line with the practices of other employers.
Hire an accountant
If you do not wish to go through the whole process of learning how to do payroll, then consider hiring an accountant. A good accountant will often process your payroll, while also ensuring that your tax payments and filings are taken care of.
However, note that this is a more expensive option.
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