Do you pay yourself a salary?

[wendydk]

No official paycheck.

 

[SecondAct]

SecondAct it has nothing to do with me.
Just as an FYI to FORUM MEMBERS when I start a subject it is not about me, like the thread "what one thing will you do this year to bring in guests" there are plenty who are struggling to make ends meet and this is for the benefit of anyone who reads the forum. Just for clarification. Unless I mention "my business" specifically in the title/question..

Joey, not suggesting it is about you, but you were struggling to get your point across and I thought it would be helpful to have your input on the topic as well. Actually, I think if everyone understood clearly what was being asked (and again, not even suggesting that your question wasn't clear, as it was perfectly clear to me), a poll would have been interesting.
Having said that, I'm not at all surprised at the results so far. Though you all know I'm still an aspiring, I have run small businesses in the past, even "S" corporations, and was never able to take a salary, though my accountant firmly advised me to do so many times. Without having given it much thought, giving myself a salary would probably still not be a priority for me. I do think that might depend on the size of inn I were operating, but in my non-accounting-brain, I'm not sure I still even understand the pros and cons.

 

[Breakfast Diva]

Joey, do you? So far, it looks like 7 people have responded that they do not take a salary, i.e., the kind that has payroll taxes deducted from it, though some may take "money" out of the business. Obviously, it does make a difference for your future SS; however, if you've already established your best 5 years from previously full-time employment and you're satisfied with that, then it doesn't really matter..

There are 2 so far who ARE taking a salary.
.

'scuse me, you are correct. Two taking salaries, though may be small. And, can you explain to my non-accounting-brain what the benefit of that is?
.

Our small salary is on purpose. The salary we are paid each month from our corporation (which we are the sole members) is subject to fed and state income tax, social security tax, etc. The lease payment which must be at a realistic current market rate, is considered part of our income, but since it is not a salary or owner's draw, we don't have to pay both the employer's and employee's share of taxes on it.
Any owner's draws are considered self employment income and you are responsible to pay self-employment taxes, ss, state and fed taxes for both the employee AND employer. That's a lot of tax.
If your business is not pulling in much of a profit, then it's not an issue since your tax liability is not a lot.

 

[Morticia]

SecondAct it has nothing to do with me.
Just as an FYI to FORUM MEMBERS when I start a subject it is not about me, like the thread "what one thing will you do this year to bring in guests" there are plenty who are struggling to make ends meet and this is for the benefit of anyone who reads the forum. Just for clarification. Unless I mention "my business" specifically in the title/question..

Joey, not suggesting it is about you, but you were struggling to get your point across and I thought it would be helpful to have your input on the topic as well. Actually, I think if everyone understood clearly what was being asked (and again, not even suggesting that your question wasn't clear, as it was perfectly clear to me), a poll would have been interesting.
Having said that, I'm not at all surprised at the results so far. Though you all know I'm still an aspiring, I have run small businesses in the past, even "S" corporations, and was never able to take a salary, though my accountant firmly advised me to do so many times. Without having given it much thought, giving myself a salary would probably still not be a priority for me. I do think that might depend on the size of inn I were operating, but in my non-accounting-brain, I'm not sure I still even understand the pros and cons.
.

Getting slightly off the topic here, but when we bought we were required to show that we could 'pay our own bills' without any salary from the business. We have a VERY small retirement check and disability check each month that keep the lights on in our space, keep food on the table and pay for other utilities, gas for the car, clothing. I've been known to work part time during the winter just to beef up that account.
We have a similar arrangement in having a 'rental agreement' between 2 corporations. Luckily, we haven't been evicted!

 

[muirford]

Joey, do you? So far, it looks like 7 people have responded that they do not take a salary, i.e., the kind that has payroll taxes deducted from it, though some may take "money" out of the business. Obviously, it does make a difference for your future SS; however, if you've already established your best 5 years from previously full-time employment and you're satisfied with that, then it doesn't really matter..

There are 2 so far who ARE taking a salary.
.

'scuse me, you are correct. Two taking salaries, though may be small. And, can you explain to my non-accounting-brain what the benefit of that is?
.

Our small salary is on purpose. The salary we are paid each month from our corporation (which we are the sole members) is subject to fed and state income tax, social security tax, etc. The lease payment which must be at a realistic current market rate, is considered part of our income, but since it is not a salary or owner's draw, we don't have to pay both the employer's and employee's share of taxes on it.
Any owner's draws are considered self employment income and you are responsible to pay self-employment taxes, ss, state and fed taxes for both the employee AND employer. That's a lot of tax.
If your business is not pulling in much of a profit, then it's not an issue since your tax liability is not a lot.
.

Any owner's draws are considered self employment income and you are responsible to pay self-employment taxes, ss, state and fed taxes for both the employee AND employer. That's a lot of tax.

It is true that the proprietor's draw (essentially the business net income) pays both sides of the FICA tax. That income is also taxed by the state and feds, but it would be taxed if it were included on a W-2 as well. Isn't there an additional tax that you pay as a corporation? I think it's kind of a draw, although you do really have to run the numbers for your own business situation.
I take a salary for two reasons - one is to be an employee who can be covered by the HRA set up for the business and the other is to have an income for an IRA contribution (since I no longer have other outside income except for some very small writing fees). We need to revisit our own situation now that DH is actually getting income both from the company he started six years ago and from the freelance software work he has been doing.

 

[Breakfast Diva]

Joey, do you? So far, it looks like 7 people have responded that they do not take a salary, i.e., the kind that has payroll taxes deducted from it, though some may take "money" out of the business. Obviously, it does make a difference for your future SS; however, if you've already established your best 5 years from previously full-time employment and you're satisfied with that, then it doesn't really matter..

There are 2 so far who ARE taking a salary.
.

'scuse me, you are correct. Two taking salaries, though may be small. And, can you explain to my non-accounting-brain what the benefit of that is?
.

Our small salary is on purpose. The salary we are paid each month from our corporation (which we are the sole members) is subject to fed and state income tax, social security tax, etc. The lease payment which must be at a realistic current market rate, is considered part of our income, but since it is not a salary or owner's draw, we don't have to pay both the employer's and employee's share of taxes on it.
Any owner's draws are considered self employment income and you are responsible to pay self-employment taxes, ss, state and fed taxes for both the employee AND employer. That's a lot of tax.
If your business is not pulling in much of a profit, then it's not an issue since your tax liability is not a lot.
.

Any owner's draws are considered self employment income and you are responsible to pay self-employment taxes, ss, state and fed taxes for both the employee AND employer. That's a lot of tax.

It is true that the proprietor's draw (essentially the business net income) pays both sides of the FICA tax. That income is also taxed by the state and feds, but it would be taxed if it were included on a W-2 as well. Isn't there an additional tax that you pay as a corporation? I think it's kind of a draw, although you do really have to run the numbers for your own business situation.
I take a salary for two reasons - one is to be an employee who can be covered by the HRA set up for the business and the other is to have an income for an IRA contribution (since I no longer have other outside income except for some very small writing fees). We need to revisit our own situation now that DH is actually getting income both from the company he started six years ago and from the freelance software work he has been doing.
.

I'm sure every state is different, but in my state our corp tax is low. I understand the basic concept of what our attorney & accountant set up, but what I can say is that since we created the corp and set up the lease payments with the small salary, our tax liability has been cut dramatically.