Discussion How do you pay yourself?

[BillyBoy86]

After i quit working for the company i was a few years ago, i picked up a part time gig and built up my personal business on the side. it's growing well, and i've been a sole proprietorship since 2014. well now, i feel the business is growing, i'm in the process of converting to LLC, and i'm going to be putting myself on payroll. my question is, with no employees (yet) is a payroll company the way to go?
if you're an owner/manager on payroll, how do you determine how much to pay yourself?

i've discussed this with several business owners and got a variety of answers, but none of them were in this line of work.

thanks!

edit* my question is really, do you set a salary for yourself, give yourself a percentage of sales, etc.?

 

[bannertime]

A payroll company could help if you don't want to have to figure out taxes and what not. You won't have to make your own w2s. Plus they can offer other benefits. Honestly, you pay yourself however much your business can afford too, or you can set a salary that will allow you to live comfortably and keep putting money back into the business. At the end of the month you could do profit bonuses. However, just don't go taking money out of the business for personal use.

 

[Billct2]

I don't know why you would use a payroll service when you are the only employee. Even if you have employees I don't know if I would do that.
You can set an amount you withdraw every week, but at the end of the year your income is whatever profit the company made. You should also be making estimated payments for taxes.
In any case I'd get an accountant to discuss this with.

 

[BillyBoy86]

A payroll company could help if you don't want to have to figure out taxes and what not. You won't have to make your own w2s. Plus they can offer other benefits. Honestly, you pay yourself however much your business can afford too, or you can set a salary that will allow you to live comfortably and keep putting money back into the business. At the end of the month you could do profit bonuses. However, just don't go taking money out of the business for personal use.

that's pretty much what i figured, about the salary + bonuses.
taxes are the reason i'd like to switch to a payroll company

 

[BillyBoy86]

I don't know why you would use a payroll service when you are the only employee. Even if you have employees I don't know if I would do that.
You can set an amount you withdraw every week, but at the end of the year your income is whatever profit the company made. You should also be making estimated payments for taxes.
In any case I'd get an accountant to discuss this with.

Several people i've talked to have highly recommended using a payroll service, that's why i'm asking. other than it being easier to show my income if needed, i'm not sure benefits/negatives.

the plan is to expand, and possibly have employees in the next year or so. with employees, what would you do?

 

[Billct2]

I have employees. I have a payroll service for them, and it's great. But for myself I just have an amount I take each month. I pay my estimated taxes every quarter.

 

[BillyBoy86]

I have employees. I have a payroll service for them, and it's great. But for myself I just have an amount I take each month. I pay my estimated taxes every quarter.

got ya, misunderstood.

 

[equippaint]

We have 9 on payroll and we do our own through payroll software, we use something from halfpricedsoftware (dont laugh it works good). If you are under $2500 tax liability for a quarter, you can mail in a check with your quarterly report, over that and you need to log into EFTPS.gov and do you deposits monthly and electronically. We have to do them weekly now and its a little bit of a pita. We have our accountant do the quarterly reports just as a double check that it is proper. The software will also calculate your tax liability if you wanted to do it all yourself. Its easy and if you do it in house, you can make adjustments to what you pay yourself really easy. Skip a week if needed etc. I dont see the need to use a payroll service especially for 1 person.
You need to talk to an accountant and setup your corp. We did an LLC filing as an S corp which allows you to take disbursements at a lower tax rate provided you are paying yourself whatever the IRS would consider a reasonable salary. If you are setup as an LLC sole proprietor, then you will be taxed on all of your net at your personal rate. Once you get setup, get your FEIN and go to the EFTPS website and get that setup too. It takes some time to get your pin so if you grow and hit that 2500 mark and arent setup, you will end up with penalties because of improper deposits until it is.

 

[billsines]

Being an LLC your company has a limited liability to it. As pertaining to dividends, as you become profitable, your accountant will probably advise you to issue dividends to yourself somewhat regularly in order to get funds away from the company and into your hands personally. Keep what is necessary to run the business, but issue dividends to yourself. As an LLC people cannot come after your personal assets. I would get with an accountant so they can keep you straight on everything. You will find as you continue to be profitable you will have to pay quarterly taxes or face a penalty.

Also, as you grow, years down the road when you have employees, make sure you structure your business so you can take some time off here and there. Nothing too crazy, but I take an occasional Friday off as the other owners cover for me. Pay yourself in time off, as the IRS cannot tax that.

 

[Gemprint]

LLC or an S-corp would work well, and just go buy quickbooks with the payroll function. We have 5 employess (small printing company) and have been doing payroll ourselves for the last 8 years. My guess is a payroll company is going to cost you 50-100 per month, not worth it unless you have a ton of employees. Talk to your accountant and attorney about LLC vs. S-corp. In regards to an accountant, see if you can find one that has other similar sized businesses as clients, that is assuming you don't have one already. I take a set salary (paid weekly) and then take additional draws when possible. Good luck.

 

[nowright]

An LLC can be taxed either as a sole proprietor, C-corp, or S-corp. You get to decide between sole proprietor C-corp at formation. You have to apply to be an S-corp after that. If you work in the business you should take an appropriate salary, not just disbursements as the IRS may impute a salary if your are audited.

 

[The Big Squeegee]

I use QB's. Payroll is free to use until you get 3 employees. Then you will have to pay a yearly subscription. QB's payroll will tell you when to make the next payment to state and federal websites or you can set it up to pay directly from QB's. Be careful with QB's services though, You can easily run up a big bill by subscribing to their many services.

I take a salary but there are times that I can't pay myself. If I record my hours I can keep track of my investment into the company in the form of retained earnings for tax time.

 

[TimToad]

Several people i've talked to have highly recommended using a payroll service, that's why i'm asking. other than it being easier to show my income if needed, i'm not sure benefits/negatives.

the plan is to expand, and possibly have employees in the next year or so. with employees, what would you do?

Get yourself Quickbooks, learn how to use it fully, set an amount of money you can comfortably live on, but below the full amount of your annual net and until all your expansion plans come to full fruition, live below your means if you can resist temptation to show off your new found wealth. The best laid plans can sometimes run into tough times, emergencies, dips in the economy, unrealistic expectations, etc.

We pay ourselves with direct draws of about 25% below our annual net profit and while living simply to begin with, we'd rather have part of the money stay in the business for lean times or emergencies. We aren't skimping on life either. We take a couple of vacations per year, eat out a few times a week, a decent place to live, money put aside for retirement, wholesome food on the table every day, drink good wine and beer, donate time and money to good causes, etc.

Hire a simple bookkeeping service to come in every quarter, double check all your entries in QuickBooks, balance everything, prepare for paying the ongoing taxes to all those owed, keep up on paying your bills. Then hire a good CPA to do your taxes from the file your bookkeeper prepares.

Paying a fee to a payroll service for a three year old sole proprietorship is a waste of money. Even incorporating is a waste of time and money at this early development of your company. Unless you have a lot of assets to protect or shield from lawsuits, the tax savings aren't substantial enough yet to make all the effort worth it.

Your business is in its infancy and needs to stabilize before considering all these things mostly reserved for more established companies.

 

[Gene@mpls]

Our acct has a Qbooks trainer who came out and set it up and comes out quarterly to make sure everything is OK. Acct files taxes at the end of the year. I haven't gone to jail yet.

 

[StarSign]

Wait, you mean you're not supposed to just put all of "your" expenditures on the company credit card?!

 

[CL Visual]

We use managepayroll.com for 6 employees now but we started with 2 on payroll. It's cheap ($25 a month) and integrates perfect with quickbooks. Our accountant recommended it and we've been very happy. I also like how you can set your direct deposit to multiple accounts. I have part of my paycheck going to my daughter's college account and part to savings. The balance I put in my personal checking account. By the way, I am the lowest paid person at my company right now. We only started 2 years ago though.

 

[ams]

I don't pay myself. My wife pays the bills and I put my portion back into the business.

 

[mfatty500]

Weekly...very weakly

 

[TopFliteGraphics]

I use ADP. Mainly because of the taxes being calculated and paid without any brain power on my end. I have myself plus one full-time and one part-time employee. I never want to have to worry about the IRS, so that keeps it simple. I have negotiated the monthly rate down to $29.99 for their full-service package. I even use them now for my worker's comp. The best part for my is that when I run my bi-weekly payroll, I can do it at 4:30 on Thursday afternoon and have it hit our bank accounts Friday morning. This works well for me as one of my biggest clients pays their invoices once a week and i get the electronic remittance advice from them on Thursday morning. this allows me to base my "salary" any given week on the actual cash flow.

Another reason I started using ADP is simply because, now, as an employee of the company, I can qualify for a mortgage without jumping through a bunch of hoops. Have a couple of years worth of W2's now and am in the process of buying a home. Tried to do it before I went on payroll and it was a nightmare. Waited a couple of years and now, no problemo.