The Best Way to Pay Yourself as a Business Owner

The Best Way to Pay Yourself as a Business Owner

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[fkillah]

This doesn't seem right. My accountant has me pay myself as a W2 and the rest as a K1 distribution since that gets taxed at a lesser rate.

[barnabasbucao]

To answer the caller’s question, using an S corp election (assuming this is a pass through which it probably is) and paying yourself a reasonable salary allows you to cap the payroll taxes which would otherwise be imposed on all of the earnings as self employment income. The earnings are all taxable but the portion of the earnings not taken through payroll is only subject to income tax.

[d.schmidt]

Talk to your CPA, I believe you can take a very modest "salary" and you get hit with the 15% payroll tax, and then the rest of the income as "profit" thus to avoid the pay roll tax.

[planwithjack]

Dave, I love you but this is very inaccurate and you need to take this video down. There is no self employment tax on SCorp or CCorp distributions, what you are calling an owner payout. Also, the amount run through payroll determines limits on retirement contributions through the business SEP/simple IRA/401k So it most definitely matters which he does and the tax is very different.

[Chele-nmqx]

My husband gets a w-2, I take a business owner draw. We’ve done it for 24 years & we pay quarterly estimated taxes. Works for us so we don’t have a huge tax bill due in April.

[Jim_Curtis]

Instead of calling Ramsey, call your accountant first since he/she is licensed to give tax advice. The first question should have been how the business is structured. If it's a corporation, it is required to have a reasonable amount of W-2 salary. If it's a partnership or sole prop, he cannot do W-2 for himself.

[frankcb]

Yeah Dave company is probably too big to do some of this stuff people are saying people usually do. But yes a lot of y’all are right

[dfarmer_]

Sounds like the action items were correct but taxation on W-2 vs owner's distributions (K-1) is different. Both are subject to income taxes, but owner's distributions are not part of payroll and not subject to payroll taxes.

[emilyalfonso]

Can you give advice on how to calculate giving 10%. Should it be on what the business makes net? Or 10% on what the business makes after calculating monthly taxes. I am the only employee (owner) - I want to give cheerfully while also acutely. Thank you!

[RockOfTruth_OFFICIAL_John.]

NOTE TO SELF (upon returning at tax time to file taxes) READ BELOW COMMENTS (to gain better insight)

[ALPHA-ROTH]

you pay yourself w2 if you are working a position in the company, a "reasonable wage"...which is not really defined. i set mine up as half days and full days of work, base my salary on that...the rest of my pay is dividends i take out every week. we tax ourselves higher on our w2 to account for income tax on our dividends. the IRS can reclassify your dividends if your wages are too low and then you can get hit with a tax bill on the interest you owe...because you dont pay social security or income tax on dividends. thats why they watch those payments. but i am a SCORP.

[kevinkohut]

Depends on the business structure. Dave giving advice when he doesn't even know the business structure is scary!

[mizan]

If I were Dave, I’d leave this question for CPAs

[veroelecktra]

Per the comments … file as an s corp and set myself up as a w2 … got it 🎉😂

[harpjason]

Thanks Team Ramsey. Merry Christmas to you all.

[jamesjazzy]

Yes, Dave, we've heard it all before. You did the best thing possible. You're always ahead of everyone and you beat everyone out. Why not just say your god and end the whole show... And we'll just go to the bible for answers... Everyone's an idiot and you're smarter than everyone else we get it...