Should Employers Pay Themselves as W2 Employees? | Employer Draw vs Salary

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Should employees pay themselves as a W2 employee? What are some strategies or reasons to do so?

Paying yourself as a W2 can improve tax budgeting, reduce liability and provide peace of mind.

Transcript:

As a small business owner, you would know how important budgeting is. But are you really including everything you should?

Today we are talking about ways small business owners can help grow their company. And, one of them, this doesn't make sense, does it? Pay themselves! How does that make sense?

Well, it's really simple. I take advantage of our own system here. And what happens is, I put myself on salary, I put myself where the taxes are taken out with each and every paycheck. And at the end of the year, I have nothing to worry about. Everything has been paid. As a small business, you are very tempted if you don't do that, to spend that money. To not set it aside.

And, what a lot of small business owners do, is, they take a draw, so they are in fact paying themselves, they are just not paying their taxes. They are not putting that aside.

They are treating payroll as their own piggy bank. I hate to put it that way, but we're all guilty. If you're in business for yourself, and there's extra money in the business account, you're going to spend it and think about the taxes later. Not everybody, there are people that are disciplined. But the majority of us like to have the money taken out. There's the peace of mind, it's done each pay period. The employer would have a W2 like everybody else.

And the way this helps grow small businesses is it really comes down to budgeting. Just like you would in your own household.

Absolutely, and it's a peace of mind. It's done.

You have seen this with some of your clients. Do you have any stories to tell about that?

I have one particular customer that has been with us 18 years. And he's got a company in South Texas. I went back to him and asked: "Is everything going well?" And he said, "You know Linwood, I would not be with anybody else. I sleep at night. I know the payroll taxes are taken care of, I know my taxes are taken care of. I get a W2, I go to my CPA. Boom, done." And that's our goal. And that builds good relationships between us and our customers. Peace of mind.

It sounds like a great approach to running any kind of business or even your household. Just making sure you've got that budget taken care of.