When you own a business, one of the most important things you need to do from an accounting standpoint is to separate your business and personal finances. It can be easy for these to get mixed in with one another. Often, small business owners will dip into their personal funds to help further the business. However, when you do this, it can cause problems for you when tax season rolls around. Instead, separate your business and personal finances and make sure you’re paying yourself from the business. Mark Dicus & Company is here to share some tips to help make it easier to pay yourself as a business owner.
Salary VS Owner’s Draw
There are two main ways that small business owners can pay themselves, salary and owner’s draw. Let’s take a closer look at them so you know the difference between the two.
– Salary: This is going to be the form of payment that most people are familiar with. It is similar to the way that you would pay your employees. You will pay yourself through a payroll schedule. You will pay federal and state income taxes as well as FICA. This is a stable way to pay yourself and all your withholdings with be automatically taken out so you don’t have to think about it. However, it is less flexible as it needs to be comparable to the pay an employee would get in the same role in your industry.
– Owner’s Draw: Through an owner’s draw, you will essentially be cutting yourself a check that will withdraw funds from your business account to put in your personal account. This allows you flexibility to pay yourself whatever you want. However, it doesn’t lower your taxable income, and your taxes aren’t automatically withheld. It is important that you are setting aside enough money to pay your taxes.
How to Determine the Amount You Should Be Paying Yourself as a Business Owner
When it comes to choosing how much you should be paying yourself, it isn’t always cut and dry. Here are some factors that impact what you will pay yourself:
– Business Performance: You will want to take the performance of your business into consideration as you determine what you want to pay yourself. How well is your business doing?
– Business Growth: Another factor to consider is the growth of your business. Consider how fast you have been growing, whether or not you just started and your goals moving forward.
– Personal Expenses: Your cost of living, the number of dependents you have, and other factors that pertain to your personal expenses should also be considered.
Bookkeepers, Accountants & More in Summerlin, North LV, Henderson, Lone Mountain Village & Greater Las Vegas, Nevada
If you’re a business owner trying to determine how you should pay yourself and how much you should pay, you can turn to Mark Dicus & Company for all of your accounting needs. We will consult with you as you are just getting started so that we can help you reach your goals and grow your business. Call us today!