I am confused... if you own it.. why would you have to “pay yourself a salary”? wouldn’t all the profits go to you either way?
Because certain businesses (corporations, mainly s corps) require you to pay owners salaries as they are not self employed..
Also try living on one paycheck at the start of jan. Until the end of the year
It depends on the structure of the business.
Subchapter S corporations have all profits flow directly to the ownership.
LLCs, other corporations and various other structures can make different rules on how they work.
Taxes.
Say I’m the CEO of an “S” corp.
I don’t take a salary,
However my corporation feeds and nurtures my employees,
namely me. I make sure that value is way below what you
have to pay in taxes. But I live like a king.
How did all Congress critters get so rich?
No, if you own your business as an s-corp, you have to pay yourself a reasonable salary. If you cannot do that, then you are losing money.
Business expenses for staff salaries and monthly operating expenses (rent, contractors, utilities, supplies) are prioritized to the top of the list, with a safety cushion for unexpected expenses and slow pay clients.
Lastly comes owner compensation.
In our case if we paid ourselves salaries that would have to be declared as income as we are already getting the maximum deduction on business losses.
Usually, paying yourself a “salry” reduces both your personal income taxes and the business taxes.
It allows you to be flexible and profits not taken as income can be tucked away in various ways than remain untaxed or taxed at a lower rate until retirement or whatever.