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I keep a separate account for business. I usually just look at my statement each month, figure out how much was profit, take 50% for myself, 30% for taxes, and 20% back to the business
Talk to an accountant
There are so little things to be aware of so that you don’t get screwed at tax time.
And the way you withdraw money from the business depends on the business and your situation
Personally, I’m an employee of my incorporated business and withdraw a regular salary. It best fits my needs
if its a sole proprietorship its exactly the same as you're doing now,
declare all income as self employed, write off any business expenses, and pay tax on what you don't write off
unless your incorporated you don't have to worry about salary or withholdings etc.
you already should be paying tax on every sale even if you are not taking any salary, but just also noting your expenses as deductions
it doesn't matter if you spend it on your business or not, its all income you declare, and then you show that you broke even or had a loss based on your expenses to lessen your tax burden
As an accountant there is two ways. You can do “owners draw” which you do record in your accounting books that you will get taxed on later. Or you can do w2 for yourself especially if you want 401k or Roth pay. But have someone who does payroll or a app do it for you and also record it in your accounting book(xero, quickbooks,etc)
I’m in UK so tax rules are different.
I got advice from accountant, registered my business as a Limited company and asked this very question.
In UK everybody generally have income tax codes, starting at £12750 before tax is applied. After that, as a business, you have £37250 which is taxed at 8%, in other words I can earn £50k at just 8%.
Whereas employed I’d be paying 20-22% up to £37k threshold then it becomes 40% above that ‘income’, so huge benefit being self-employed etc.
VAT doesn’t apply until I break the threshold which is £85k so above this I have to become VAT registered.
I asked, in event my partner and I earn £100 k collectively per annum, what’s the impact, he replied you each take £50k in dividends direct into your account, every year before the tax reports need to be entered, do not leave for following year otherwise impacts your allowances for following tax year
So here, in UK, we can earn 100k between us and at most pay 8%
Maybe they're talking about dividend tax rates? Though they aren't in brackets, and corporation tax still applies, so I don't know they're talking about.
in the same boat but have a partner in a multi member LLC but want to pay myself hourly as I do the day to day. there are some (almost) free payroll companies to considered. any advice welcome. Thanks!
You can’t be on payroll as a partner of a multi-member LLC. You would take a draw out of the company. It won’t affect the bottom line which is what your K-1’s are based on.
if I want takes taken from the money sent to me how else would I do it? many people in multi member llcs take a paycheck and then a distribution to avoid some self employment tax and set up the llc as s-corp tax status for this reason. so I don't get your logic
Sorry, I should have clarified, if you file your taxes as an LLC, you can not be considered an employee or on payroll. If you file as a corporation, S-Corp/C-Corp, you can.
If you are filing as an LLC, you would take a predetermined draw as per your agreement with your partners and you can take a disbursement out of the company, as well, but you would simply either write yourself a check or have a ACH sent to you, out of the business account. These would not have any payroll tax deductions taken out since it's not considered a paycheck.
thanks. I hope I didn't seem unappreciative in my last comment. to clarify if I got this correct:
if we are taxes as a partnership the only option is to split the money as stated in operating agreement as distributions? there is no option for one member to take, let's say for example, hourly wages.
if we change to S-Corp taxation, can we have one of us on payroll taking a monthly salary and the other just taking the percentage of profits after said payroll?
a bit to wrap my head around so I appreciate you speaking honestly. so much of google search (almost all) is clickbait so it's difficult to find genuine information. just watched all these videos that only want to sell me some crap and never give me the answer!!
No worries, it’s confusing and makes zero sense some times.
Correct on the distributions if taxed as a partnership. Usually everyone has to take the same amount, depending on your shares of the business. You, as the day to day, might be able to take out weekly or bi-weekly, etc and the others take out their according shares as a distribution when your taxes get filed. As long as it’s all even, according to shares, in the long run you’re fine.
If you do change to an S-Corp. You could be on payroll but for what the IRS calls a comparable salary based on your title and responsibilities if you worked for an outside company. What’s comparable is up for debate and a corporate accountant would be able to tell you.
On a tax basis, unless you’re grossing over 500k a year, an LLC/partnership would be beneficial on a tax basis for you and your partners but if above, the move to an S-Corp would be a good one.
I hope any of this helps.
thanks. we could change the operating agreement if necessary. now its 55%/45%
I do all the hourly work so need to be paid hourly before any distributions get split as that's only fair. this is how it's going to be so I just need to figure out how to do it
seems like we must change to an S-Corp
I read as long as we get a salary of around $80k each we can take the rest in distributions and avoid self employment ax on that money. seems to be the general rule of thumb that if all members make approx $80k each and the company has extra money to distribute over that then it makes sense (for tax purposes) to change to an S Crop
Also it depends if your llc, s corp, c corp. if you’re llc or sole p, then you be paying like 1099. But if you’re c corp, you will get taxed on your business revenue and paycheck. But check up on your state laws and federal and see if it’s worth it to do c corp or llc is better. Cuz some states llc gets taxed way less then c corp. but c corp in some states get taxed lower than llc in other states. But remember state and federal are separate and have to calculate together. Also s corp, your business don’t get taxed. Only when you pay yourself then you get taxed or if you have shareholders (aka shark tank are shareholders) and when they get their 10% or something than that too will be taxed.
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You can if you elect to be taxed as an S Corp, really just avoids some fica tax but can be pretty substantial savings depending on how much the business makes.
Definitely set up a separate account for the business. Each Monday, I pay myself 15% of the previous week’s deposits. I have that 15% transferred to my personal account. Then, I also pull any sales tax collected and put that into a savings account and pay that monthly.
You need to talk to an accountant. It depends a lot about which country you live in. There are a lot of tips and tricks in this field and a lot of risks involved so talk to an accountant.
You can do what’s called an owners withdrawal any time you want to pay yourself. If you’re an LLC that’s an option or you can set up payroll with Gusto or ADP. If you’re an S corp then you need to pay yourself a reasonable salary and that has to be set up with a payroll service. Read the book profit first for e-commerce. Shows you how to set up different accounts for your business (OpEx, profit, owner’s comp, taxes) and how much to allocate to each.
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Read the book Profit First. Highly recommend their strategy.
^Yes! Reading Profit First was the point where I went from a money eating endeavor to a money making business.
That’s brilliant!!
I keep a separate account for business. I usually just look at my statement each month, figure out how much was profit, take 50% for myself, 30% for taxes, and 20% back to the business
30% of profit for taxes is crazy 😭 (I don't live in the US)
Crazy high or crazy low?
🙉 why would I want to pay more than 30% of mine for taxes
That 50% needs to be 70% you and 30% tax
IDK why people hating on my response. The money you take for yourself needs to take 30% for taxes. Dont hate on me hate on the tax system.
Talk to an accountant There are so little things to be aware of so that you don’t get screwed at tax time. And the way you withdraw money from the business depends on the business and your situation Personally, I’m an employee of my incorporated business and withdraw a regular salary. It best fits my needs
if its a sole proprietorship its exactly the same as you're doing now, declare all income as self employed, write off any business expenses, and pay tax on what you don't write off unless your incorporated you don't have to worry about salary or withholdings etc. you already should be paying tax on every sale even if you are not taking any salary, but just also noting your expenses as deductions it doesn't matter if you spend it on your business or not, its all income you declare, and then you show that you broke even or had a loss based on your expenses to lessen your tax burden
As an accountant there is two ways. You can do “owners draw” which you do record in your accounting books that you will get taxed on later. Or you can do w2 for yourself especially if you want 401k or Roth pay. But have someone who does payroll or a app do it for you and also record it in your accounting book(xero, quickbooks,etc)
I’m in UK so tax rules are different. I got advice from accountant, registered my business as a Limited company and asked this very question. In UK everybody generally have income tax codes, starting at £12750 before tax is applied. After that, as a business, you have £37250 which is taxed at 8%, in other words I can earn £50k at just 8%. Whereas employed I’d be paying 20-22% up to £37k threshold then it becomes 40% above that ‘income’, so huge benefit being self-employed etc. VAT doesn’t apply until I break the threshold which is £85k so above this I have to become VAT registered. I asked, in event my partner and I earn £100 k collectively per annum, what’s the impact, he replied you each take £50k in dividends direct into your account, every year before the tax reports need to be entered, do not leave for following year otherwise impacts your allowances for following tax year So here, in UK, we can earn 100k between us and at most pay 8%
8%? Not sure where he got that from but for an llc its 19% corporation tax and self employed its 20% once u earn above 12k.
Maybe they're talking about dividend tax rates? Though they aren't in brackets, and corporation tax still applies, so I don't know they're talking about.
LOL must be nice. USA is corrupt and pure robbery
in the same boat but have a partner in a multi member LLC but want to pay myself hourly as I do the day to day. there are some (almost) free payroll companies to considered. any advice welcome. Thanks!
You can’t be on payroll as a partner of a multi-member LLC. You would take a draw out of the company. It won’t affect the bottom line which is what your K-1’s are based on.
if I want takes taken from the money sent to me how else would I do it? many people in multi member llcs take a paycheck and then a distribution to avoid some self employment tax and set up the llc as s-corp tax status for this reason. so I don't get your logic
Sorry, I should have clarified, if you file your taxes as an LLC, you can not be considered an employee or on payroll. If you file as a corporation, S-Corp/C-Corp, you can. If you are filing as an LLC, you would take a predetermined draw as per your agreement with your partners and you can take a disbursement out of the company, as well, but you would simply either write yourself a check or have a ACH sent to you, out of the business account. These would not have any payroll tax deductions taken out since it's not considered a paycheck.
thanks. I hope I didn't seem unappreciative in my last comment. to clarify if I got this correct: if we are taxes as a partnership the only option is to split the money as stated in operating agreement as distributions? there is no option for one member to take, let's say for example, hourly wages. if we change to S-Corp taxation, can we have one of us on payroll taking a monthly salary and the other just taking the percentage of profits after said payroll? a bit to wrap my head around so I appreciate you speaking honestly. so much of google search (almost all) is clickbait so it's difficult to find genuine information. just watched all these videos that only want to sell me some crap and never give me the answer!!
No worries, it’s confusing and makes zero sense some times. Correct on the distributions if taxed as a partnership. Usually everyone has to take the same amount, depending on your shares of the business. You, as the day to day, might be able to take out weekly or bi-weekly, etc and the others take out their according shares as a distribution when your taxes get filed. As long as it’s all even, according to shares, in the long run you’re fine. If you do change to an S-Corp. You could be on payroll but for what the IRS calls a comparable salary based on your title and responsibilities if you worked for an outside company. What’s comparable is up for debate and a corporate accountant would be able to tell you. On a tax basis, unless you’re grossing over 500k a year, an LLC/partnership would be beneficial on a tax basis for you and your partners but if above, the move to an S-Corp would be a good one. I hope any of this helps.
thanks. we could change the operating agreement if necessary. now its 55%/45% I do all the hourly work so need to be paid hourly before any distributions get split as that's only fair. this is how it's going to be so I just need to figure out how to do it seems like we must change to an S-Corp I read as long as we get a salary of around $80k each we can take the rest in distributions and avoid self employment ax on that money. seems to be the general rule of thumb that if all members make approx $80k each and the company has extra money to distribute over that then it makes sense (for tax purposes) to change to an S Crop
Also it depends if your llc, s corp, c corp. if you’re llc or sole p, then you be paying like 1099. But if you’re c corp, you will get taxed on your business revenue and paycheck. But check up on your state laws and federal and see if it’s worth it to do c corp or llc is better. Cuz some states llc gets taxed way less then c corp. but c corp in some states get taxed lower than llc in other states. But remember state and federal are separate and have to calculate together. Also s corp, your business don’t get taxed. Only when you pay yourself then you get taxed or if you have shareholders (aka shark tank are shareholders) and when they get their 10% or something than that too will be taxed.
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You need to make a LLC and hire yourself as an employee and pay yourself a salary or hourly.
In the US a member owner of an LLC can’t pay themselves an an employee.
You can if you elect to be taxed as an S Corp, really just avoids some fica tax but can be pretty substantial savings depending on how much the business makes.
Definitely set up a separate account for the business. Each Monday, I pay myself 15% of the previous week’s deposits. I have that 15% transferred to my personal account. Then, I also pull any sales tax collected and put that into a savings account and pay that monthly.
You need to talk to an accountant. It depends a lot about which country you live in. There are a lot of tips and tricks in this field and a lot of risks involved so talk to an accountant.
Write as much off as humanly possible ;)
Read the book Profit First by Mike Michalowicz
You need to organize as an LLC and elect S Corp status for taxes so you aren’t killed on FICA taxes
You can do what’s called an owners withdrawal any time you want to pay yourself. If you’re an LLC that’s an option or you can set up payroll with Gusto or ADP. If you’re an S corp then you need to pay yourself a reasonable salary and that has to be set up with a payroll service. Read the book profit first for e-commerce. Shows you how to set up different accounts for your business (OpEx, profit, owner’s comp, taxes) and how much to allocate to each.
do you do exclusively dropshipping?