Your whole purpose as a business owner is to make as much money as you can. Perhaps you heard other business owners talk about paying themselves a salary and wondered if you would end up writing checks to yourself after launching your business. Typically, this isn’t the way it works. The way you pay yourself depends on the legal entity you choose for your business and your unique business needs.

How Owners Pay Themselves for Different Types of Businesses

If you’re a sole proprietor or operate as a single-member limited liability company (LLC), you won’t file a separate tax return for your business. To give yourself a salary, you take money out of your business bank account and transfer it to your personal bank account. You’re responsible for paying federal, state, and self-employment tax on your own.

Partners, multi-member LLCs, and owners of S corporations pay themselves a distributive share. This is each person’s share of the revenue, credits, deductions, and losses of the company. You report your profit or loss on Schedule K-100 on Form 1040 of your income tax return. As a corporate owner, you would receive dividends that you would report as dividend income on Form 1040.

The only time you will receive a direct paycheck as a business owner is when you are a corporate executive who works for your own company. You receive a W-2 statement reporting your wages at the end of the year and pay the same percentage of FICA tax as other traditionally employed people.

The Internal Revenue Service (IRS) doesn’t limit the amount of money you can take out of your company as a business owner regardless of your business entity status. However, you always need to keep enough funds in your business bank account to pay employee salaries and other fixed and unexpected expenses.

Want to know more about business classifications or how to lower your tax burden? Schedule a consultation with Safe Harbor Commercial Capital today.