How to pay yourself as a business owner

Apr 29

There are two methods you can choose from:

You pay yourself a consistent salary and withhold taxes, like you do for your employees.

Let’s break down the pros and cons.

Pros

Predictable Income: You will be able to budget efficiently when you know exactly how much you will be paid. This will also help you budget for your payroll expenses in your business.
Lower taxes: Withholding taxes from your salary will help you owe less taxes at the end of the year.
More potential benefits: This will open up options for retirement and health insurance benefits.

Cons

Complexity: Additional documents, complying with regulations, setting up payroll, social security information, withholding income taxes
Less Flexibility: You are set at a recurring pay.

2. Owners Draw

This method allows you to withdraw money from your business account as needed.

Pros

Simplicity: There is no formal payroll system you have to follow.
Flexibility: Your draw depends on business performance. You can take money out whenever you feel necessary.

Cons

Higher taxes at the end of the year: You will owe more, because you haven’t been withholding any out of your pay throughout the year.
Fewer tax breaks: You don’t get the tax benefits of retirement plans & deductions that you would receive with a taking a salary.

If you are interested in more helpful tips about how you can pay yourself, schedule a free consultation with us!

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