Posted In Taxes Accounting | Posted On 8 September 2019 | Posted By AB Value Team




We get this question a lot, and maybe you have thought about this as well. We'll, we wanted to shed light on the subject and help you too understand generally how to pay yourself and maximize tax savings...


First.. if your company is any of these below, it may be eligible for restructuring to maximize savings and also pay your self. 


A single member llc, sole proprietor, any money that the company makes after expenses, then the profits are technically your salaries. And you're also paying self employment taxes on that which is an additional15.3% extra, on top of your tax bracket.


If you're in a partnership, the same thing applies, if the company has any profits, then the profits are split and reported at the end of the year, usually based on percentages. Unless the company agreements say that someone gets paid more, since the partnership doesn't technically pay taxes, and the taxes are paid by the owners, the profits will be the income/pay that is reported.


Unless the owner, is a 1099 contractor or W-2 employee to the partnership and we can prove that with stubs and checks, and/or employment agreement. Again, we have to worry about the self-employment taxes.


If you have an S-Corp, then if you are the only owner, you have to pay yourself a W-2 Salary if you are working in the business. This is what is called reasonable salary, and requires the owners to pay themself as if they are working as an employee. If you're an S Corp, then the Corporation still doesn't pay taxes, but you as the owner don't have to pay Self Employment taxes on those profits, so your company is profiting a $100,000 at the end of the year, this means an $8,000 dollar savings vs a partnership or single member LLC because your an S Corp.


As an S Corp owner, you can also have 2 different types of pay, a salary the only drawback for the S Corp is that it requires more things since it is a corporation so a bit more maintenance, but as your making profits, the Savings from the S Corp can pay off.


With a C-Corp, you also have to pay yourself, and you can avoid Self Employment taxes, but we then have to worry about double taxation because the C Corp and the individual, the shareholders, will also have to pay taxes, so double taxation.


We hope we explained these alright, if you would like to discuss more specifics, you can schedule a call here.

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AB Value Team

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