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Paycheck or a draw?
As business owners do you take a paycheck from your company with all the taxes taken out or just take an owner's draw and pay the taxes quarterly? Any ideas about what is better?
If I would ever get in gear and incorporate (just plain lazy), I would issue myself a paycheck. As a Sole, I draw.
Far as I know, we cannot pay ourselves on a payroll unless we are incorporated.
As a sole I draw too. Mostly because my company is so new (4 months full time) and I'm building it up. I need almost everything I bring in.
I'd be very interested to see how others pay themselves.
I just draw also, as sole proprietor, all my money goes into my business account, then i take from there, and like you Beautiful View, I use almost all I make...especially in the winter, in summer I bank a fair amount, unless I buy a van like this summer, paid cash for it!
I am incorporated and I take a draw but my wife works for my payroll service company and tells me that many business owners take a regular paycheck. I am wondering if I should do that too. If there are any tax advantages for 2008?
Originally Posted by CFP
I take a weekly paycheck. Not sure about 2008 tax advantages.
Talk to your accountant. I was told by mine as an LLC I would be taxed twice on the money if I were to issue myself a paycheck.
My first full legitimate year in business I did not know about paying quarterly taxes. And of course I did not put aside the money to pay them in full, I was young. I got slammed and it took me a few years to catch up. Each year what you have to put aside each quarter is determined by your year before revenue. One year some sometime back I made much, much more than the year before and I did not put aside enough in quarterly taxes. Once again I got slammed at the end of the year. It took me a couple of years to catch up again. Paying double tax payments sucks! Anyway I highly recommend that you get an accountant and and make sure you are on top of what you need to be putting aside for taxes. It takes some discipline to put that money aside. At least it did for me.
I also highly recommend that those that are sole proprietors look into becoming an LLC or incorporating to get that liability off themselves personally. The last thing you want is to be accused of scratching mucho bucks worth of glass or whatever, get sued, and they take your personal assets.
Accountants are expensive, but worth it in my opinion.
Another thing. If you use a payroll service (I do) you will be charged for your paycheck too. I know it's not much but it is money.
Chris, do you then get a W-2 at the end of the year and file just as you would if you were an employee of A.C.W.C.?
Originally Posted by Chris
OK, that's my real question. In other words if you take a check, then you are an employee and not subject to self employment taxes, but you are paying FICA ect... and eligible for SSI later.
Originally Posted by sethfenster
If you take a draw, you don't pay FICA or Medicare but you do pay self-employment taxes. Which one is better? I know this is a question for an accountant but I thought someone here might know the difference.