#1 Mistake Business Owners Make
Not Paying Yourself is the Biggest Mistake Business Owners Make.
When you run a business, you must deposit ALL business income into your business bank account. (Please don’t stuff it under your mattress!) You should use this money to pay your business expenses. You should not take money out of the business account to use it as you please. You should not pay personal expenses with your business checks, debit cards, or ATM cash withdrawals. You must use the business income for paying business expenses. Since you work in the business, your salary is a valid business expense.
YOU MUST PAY YOURSELF A SALARY
This doesn’t mean just transferring money from your business account to your personal account. Nor does it mean writing a company check to yourself and putting “salary” or “payroll” on the memo line. Doing this will subject you to the same “Self Employment Tax” contractors pay. This is an additional 15.3% tax on the money you paid yourself.
Technically, you do not “own” the business, it is an entity unto itself (like an artificial person). You are an employee of the business and must be paid as such.
The business should hire a payroll service that will issue you a W-2 at the end of the year and make all the payroll tax deposits that are required by law.
This is the best way to make sure you are compliant with IRS guidelines.
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