hiring yourself

It’s Time to Consider Hiring Yourself

It’s the new year and one of the things you should be thinking about, if you haven’t already done so, is hiring yourself. A super smart entity and tax specialist once told me, “if the IRS audits your business and finds you should be paying yourself as an employee and you are not, they will decide how much you should make and force you to pay yourself what they think the amount should be”.

Here are some things to keep in mind as you consider hiring yourself:

Pay yourself as little as possible

The goal here is to pay yourself a reasonable salary, one that would be considered adequate by the IRS, but not one so big it will cost you a lot in payroll taxes.

Here’s the deal, there are two general ways to pay yourself from your corporation, pay yourself a salary (called a W-2) or pay yourself through profit distributions. When you pay yourself a salary, you must also pay state taxes on the payroll. You don’t pay payroll taxes on profit distributions. It is a delicate balance here to pay yourself enough, but not too much.

Consult with an expert

Many new entrepreneurs fall into the trap of only paying themselves through profit distributions. Disclaimer here, I am not a tax strategist or entity expert, however I would encourage you to consult with an advisor and consider making yourself an employee of your company.

Ask your advisor how much you should pay yourself given the amount of money your company is bringing in.

There’s flexibility

You don’t have to pay yourself every month, for some companies revenues are not always consistent and vary monthly. You can pay yourself quarterly or bi-annually depending on the corporate revenues.

Corporate compliance

If you do decide to hire yourself and pay yourself a salary, make sure you are in compliance by creating a job description and a corporate resolution that documents the hire.

Make sure all the official documents are completed and filed in your corporate binder.

Review mid-year

At least annually, but perhaps more frequently, review your salary with the earnings of the company to make sure they are still aligned. If necessary, talk to your tax strategist or entity specialist to make sure everything still makes sense as your business grows.

Payroll services

There are lots of companies out there that provide payroll services. I use Paychex, but there are plenty of options to have payroll and all the paperwork associated with it handled by the experts.

As we begin this year, take the time to really look at your business and where you want to go in 2017.

To the best year ever!!


Posted

in

, , ,

by

Tags:

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *