Taking Salary as a Business Owner

Taking Ownership

If you are a business owner, you wear many hats. After all the work you put in building your business, hiring employees, staying on top of inventory, and maintaining the books, it can often seem that you come last. However, making a living is critical to your health and financial security. The IRS has specific guidelines as to how this should be done depending on your business. They have organized businesses into six types that must adhere to the rules and regulations that are applicable. The smallest types are the Sole Proprietorship and Single-Member LLC. Both of these types feature one owner. The difference is that the Single-Member LLC requires the filing of Articles of Organization and then becomes its own legal entity. Next, there are Partnerships and Multiple-Member LLCs, which involve multiple owners. Finally, S corporations and Corporation Shareholders have many owners and are even more complicated.

Making a Buck

If you are a Sole Proprietor or Single Member LLC, you will be getting your salary through owner draw. As a business partner, a Multi-Member LLC Owner, or an S corporation owner, you will be receiving a distributive share. Finally, you may not think of this since it is not always framed this way, but you are also a business owner if you are a Corporation Shareholder. In this instance, you receive your compensation through dividends. While there are several different ways to organize your business and IRS guidelines, there are only three ways to take your salary.

Paying the Piper

Also, keep in mind how you will be paying taxes on your salary to have everything for year-end. Both Sole Proprietorships and Single-Member LLC Owners will pay taxes through Schedule C on Form 1040/1040-SR. Partners and Multiple-Member LLC Owners and S corporation Owners will Schedule K-1 on form 1040/1040-SR. Finally, Corporation Shareholders are taxed upon any dividends received. Remember to pay yourself and your taxes appropriately.

by Nick Climan – Content Creator for Half Full Marketing

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