What is an Owners Draw vs Payroll When I Pay Myself As A Business Owner?

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It is important to pay yourself as an owner, but sometimes the process can be messy and confusing. There are a variety of options available, depending on the type of business entity you have. Certain payroll deductions will reduce your business income, but guaranteed payments are unaffected by profit or loss. In this episode, Mike discusses ways to pay yourself from your business and what requirements must be met to do so. He also dives into how to save money on taxes through proper accounting and salary deductions.

 

[00:00] How to Pay Yourself as a Business Owner: An Overview

·         An owner's draw is not considered a business expense and therefore does not reduce your business profit.

·         Payroll requires doing payroll tax withholdings, form filings, and making payments to various government agencies.

·         Payroll is a business expense that reduces your business income.

 

[04:11] Owner's Draw, Guaranteed Payment, or Dividend

·         Paying yourself as an owner via payroll is an expense to your business, but it's gonna be reported on your tax return as income.

·         A dividend is a rarer way to pay yourself as a business owner and it's similar to an owner's draw distribution but oftentimes requires some extra year-end paperwork.

·         With a sole proprietorship or single-member LLC, paying yourself via an owner's draw is the simplest way to do it

 

[11:49] How to Pay Yourself Before Year End

•       If you're operating as a sole proprietorship or single-member LLC, you'll pay yourself with an owner's draw or distribution. 

•       If you're operating as a partnership, you'll pay yourself as an owner's draw and/or guaranteed payment. 

•       If you're operating as an S corporation, you'll pay yourself with both distribution and payroll.

 

[16:00] Strategies for Saving on Taxes

•       Some strategies include paying yourself a reasonable salary, taking a salary from your business, and running an S corporation correctly.

 

 

 

Key Quotes

 

“Always remember with a pass-through entity, you are taxed on the profit of your business regardless of how much money you leave in or take out of that.” – Mike Jesowshek

 

 

 

Resources Mentioned

 

●     Accounting software: https://gusto.com/

●     Bookkeeping blog article: https://taxsavingspodcast.com/bookkeeping.

 

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Podcast Host: Mike Jesowshek, CPA - Founder and Host of Small Business Tax Savings Podcast

Join Our Tax Minimization Program: https://www.taxsavingspodcast.com/tax

 

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