In this series of blogs discussing how to pay yourself as a small business owner, I will cover this subject as it pertains to three different types of entities. These include sole proprietorship, LLC, and an S Corporation. Today, let’s consider sole proprietorship.
If you’re a sole proprietor, you will not need to set up payroll or remit payroll taxes when you pay yourself. Always remember that as a sole proprietor, your tax is based on your profit, not how much you pay yourself.
However, when you pay yourself, I advise three things.
1. Do not drain your bank account whenever there is money in it.
2. Pay yourself regularly as you would an employee, either once or twice a month.
3. Set a salary amount for yourself depending on your profit and your personal financial needs.
So for example, let’s say you pay yourself a profit-permitting $40,000 salary. You will first need to divvy that sum up into a set schedule. From there, with each payment, you will transfer this money from your business bank account into your personal account. And that’s it. Pretty simple! No taxes, no remitting anything to the government, and no 1099’s. Simply remember to get yourself on some set schedule, pay yourself regularly, and do so in accordance with your profits. Check out our upcoming blog on paying yourself as a business owner!
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