Your Small Business – How to Pay Yourself a Small Business Salary

If you work for someone else, you get a salary. However, if you are a small business owner, you may wonder if it’s ok to give yourself a salary. The answer is yes, but the form of payment depends on the type of business. Read on to learn how to pay yourself the equivalent of a small business salary. And, click here to see a helpful spreadsheet.

Business Type: Sole Proprietor and Single-Member LLC

You are not an employee, so you can’t give yourself a small business salary. However, you can take a draw. A draw is a distribution to you from your profits and is a drawdown from your capital account. Because this is an accounting transaction, it doesn’t have to be reported on your tax return. You will be subject to self-employment tax. 

Business Type: Partnership and Multiple-Member LLC

These types of businesses involve more than one partner or owner. Partners/owners can pay themselves in the form of a distributive share. These payments must be reported on Schedule K-1 of Form 1040 when individual tax returns are filed. Payments are subject to self-employment tax.

Business Type: Corporation and S Corporation

An owner of a corporation or s corporation is regarded as a shareholder. A shareholder may receive dividends if the corporation’s board decides to pay them. Many small companies prefer to plow all profits back into the corporation to facilitate growth. However, a corporation owner involved in the day-to-day running of the business must be paid a salary. S corporation shareholders can take additional profit distributions.

How Much to Take From Your Business

Business success depends on prudence, so don’t take the equivalent of a small business salary that’s too large. You need money to pay employees, meet expenses, or retire your loans. On the subject of loans, your growing business will require funding from time to time. ASA Capital Funding specializes in a wide variety of lending types, so if you need a loan, give us a call.

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