How to Pay Yourself Like the Queen You Are
We’re rushing up on the end of the year and it’s time to start thinking about your plans for the new year. Chances are, you want your business to grow and improve, so it’s the perfect time to make some big decisions. For example, paying yourself on purpose instead of waiting and hoping there’s money left at the end of the month.
When you wing it with your paycheck, you’re risking tax nightmares. So, let’s skip the panic and make a plan for the new year. Here’s how to do that step-by-step.
Figurehead or Slave? Why Your Business Role Matters
What’s your business structure? This is important because it often determines how you get paid.
Sole Proprietor/Single Member LLC
Usually treated the same for tax purposes
Your business income is reported on your personal tax return
Usually uses owner’s draws instead of payroll, where you transfer from the business account to your personal account
You pay income tax and self-employment tax on the profit, not the draw
Multi-Member LLC/Partnership
Profits are split between partners according to your agreement
Owners typically take partner draws instead of wages
Each partner pays taxes on their share of the profit, regardless of whether or not they took the cash
Corporation (both C & S Corps)
If you work in the company, you’ll need a salary via payroll
Taxes are withheld through the payroll
You may also get dividends or owner distributions, depending on how the corporation was set up
Tax rules are far stricter
If you’re not sure of all the rules that work with your business type, you definitely need to talk to a tax pro before filing taxes or making any decisions.
The IRS Doesn’t Care That You Forgot to Plan Ahead
Taxes are inevitable and every time your business pays you, it has to be taxed one way or another. It’s in your best interest to know exactly how that works so you can prepare for tax time.
If you’re on a salary, you’ll need to plan ahead because income tax, Social Security, and Medicare will be withheld from your pay. However, the business must also pay payroll taxes.
If you’re doing owner’s draws, the draw usually isn’t taxable at the moment you pay it out. You’ll be taxed on the profit of the business, whether or not you leave the money in the business account or transfer it over. Make sure you set aside money for your taxes throughout the year, because the IRS isn’t so forgiving when it comes to late payments.
A good way to avoid issues down the road is to do regular transfers or payments to yourself instead of random “Oh, I need money” transfers. These are easier to track and you can set aside a certain percentage (usually 20-30%) of your money for taxes.
Basically, no matter how the money comes to you, it is taxable. Know how and when you have to pay those taxes.
Pay Yourself Like a Pro, Not on Vibes
Ready to set yourself up for success in 2026? Set up a system so you can track all your money in both business and personal accounts. Then, consult with Ask Anna Tax today to figure out exactly what you need to do to stay on top of your taxes.
