Now that you’ve narrowed down what entity type fits best, it’s really common for entrepreneurs wonder about the best way to pay themselves. For sole proprietors, single member LLCs and partnerships, for the most part you can’t pay yourself wrong. You’ll be taxed on all of the profits either way, whether you pay yourself all the profits or leave them all in the business account. For an S-Corp election, you will need to run payroll in order to get the tax benefits. I recommend using Gusto* for your payroll.  As for timing, you can set that up however works best for you. Just be aware that as an S-Corp you can’t just transfer money to yourself without either running it through payroll as a bonus or writing yourself a check as a profit share.

We cover ALL of this in the “Get Your Finance Sh*t Together” self-study course at confidentmoneypodcast.com!

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Music credit: Neon Fairies by Wolves 

A Podcast Launch Bestie production

Hey, welcome back today.

We are going to be talking about probably the number one question that I get

from entrepreneurs and business owners.

And also I think the most commonly confusing question

and that's how to pay yourself.

Seems, you know, kind of straightforward, but there are some serious

nuances and questions that come up around this and misconceptions.

So.

I'm going to talk about the right ways to pay yourself the do's and

the don'ts, whether you need to be running payroll and how that all

impacts your taxes on this episode.

Okay.

Number one, let's talk about how to pay yourself, you know, are you

going to use Venmo, checks, online transfers, do you need to take cash out?

Like what, what do you need to be doing?

And this might sound crazy.

I feel like this is such a common happening that we see happen

in the business world, right.

Where you're like, oh my God, there's so many options.

Like a, there's a little, little bit of like decision paralysis going on.

Cause there's so many options.

But at the end of the day, it's so much simpler than we all make it out.

If you are a sole proprietor or a single member, LLC, there's no

wrong way really to pay yourself.

It doesn't matter.

Cash check online transfers.

Zell's would be fine then Mo technically Venmo would be.

Okay with an asterisk simply because you're not supposed to be

using Venmo for business purposes.

However, technically paying yourself is not a business purpose,

although paying yourself via Venmo kind of difficult to do.

So.

My favorite and my major tip is to set up a regular way to pay yourself.

So instead of money flying here and there and chaos I really

recommend when you're first getting started paying yourself one day.

And either paying yourself a flat amount or paying yourself

a percentage of what you make.

Generally you want to be paying yourself about 50% or less, and

we're actually gonna go into that in our next episode, how to forecast

what you need to be making, but.

Paying herself, either a set amount or a set percentage once a week, I think

is a really easy way to do that when I was first getting started and with a lot

of our clients, I encourage, they pay themselves either every Monday or every

Friday, a that gets your personal bills.

That you can kind of know what to expect and it keeps you like if you're doing

the profit first medicine method or something else, you're not sitting here.

Oh gosh, I got five payments today, four payments yesterday, and I'm getting three

payments tomorrow and you're not having to do all the math on a daily basis.

It's just, it's a fricking mess.

I really liked doing it once a week.

If you're not counting on the income, I might even do it once

every two weeks or once a month.

But if you need the income more regularly, which I find to be much more common with

the businesses that I work with once a week, then eventually maybe move to

every other week if that works for you.

But there's nothing wrong with doing.

No.

I really like if you have your bank at the same place, like business

bank, personal banking, all at the same bank, you know, chase, Wells

Fargo, bank of America, you name it.

You're simply able to do an online transfer.

So you're able to go in and move money from the business

account to your personal account.

Normally in the memo, I'll put something simple, like owners pay or owners.

Because that's not actually a business expense, the money that you take

out of the business to pay yourself.

And that's in quotes to pay yourself is not payroll.

It's not wages and salaries.

It's owner's draw or owner's pay.

And it does not affect the expenses of your business.

Because like we said, in the previous episode, remember how

all that profit and the bucket drips into your personal bucket.

Same concept, whether you pay yourself all of that money that you have that's

profit, or whether you leave it in your business account, you get taxed on it.

So that's the next, really common misconception that I have.

I have worked with some clients who come to me and they're

like, oh my God, I'm terrified.

I was like, what the taxes are going to be.

I haven't moved any of the money over.

I don't know how to pay myself the right way.

I've left it all on my business account.

What do I do?

And I mean, the, the good and the bad is, Hey, like you're going to

pay taxes on it, whether you pay it to yourself or not, you're not going

to fuck it up by, you know, paying yourself or wrong as long as you're not

doing payroll when you shouldn't be.

So you can move the money over.

But you're paying taxes, whether you let it sit there and grow, which for some

of my clients, they're really happy to do, you know, they want to have their

business accounts be super flushed.

Maybe they have another job.

Maybe they have a partner whose income they're relying on.

That's totally fine.

If you're able to leave that money alone, just know that you're paying taxes each

year as you go, as you have your profits.

So you don't have to worry if you've accumulate.

You know, 50, 60, $70,000 in your business checking.

And then you finally go to start paying yourself.

You've paid taxes on whatever your profit is.

So deep breaths because you're not paying yourself wrong.

Now, if you do not have your bank, your personal bank at the same big as your

business bank, I really like using checks.

And this is so flipping old school.

Do not for the love of everything, do not order checks from your bank.

They are probably going to be like Harlan Clark.

It's going to be 125 checks for a hundred checks.

And they're going to be ridiculous.

Go to Vista print.

You don't have to order checks to your bank.

Go to Vista print.

Go to look at their check options.

You need your info.

So like business name, business address, um, what bank you bank with

and your nine digit routing number and your account number, which

you can get from online banking.

Go in.

It'll prompt you to enter all your information for the checks.

And I'm still working off the Vista print orders that I had

like three or four years ago.

And I write checks regularly for my business, just nature, you know who I am.

So I think they were like $5 or $7 for 125 of them.

So if your banking is not all at the same place, order some checks, um, same thing.

If you're needing to be like contractors or subcontractors and you need

checks, you can use all of those.

I really like using checks for exactly that reason.

But when you're paying yourself, it's really easy because you can write yourself

a check and then mobile deposit it.

So it's a really low cost way to be paying yourself.

So this is for sole proprietors, single member, LLCs, and

partnerships for the most part.

Now, if you are running payroll, paying yourself as different, and we're going to

talk about that for just a minute or two.

So when you have an S-corp election, you have to be running payroll in

order to lock in all of the tax savings at the S-corp election brings.

And when I say payroll, I mean like through QuickBooks, please don't

use QuickBooks payroll through ADP, through Paychex, through sure.

Payroll or through my favorite Gusto.

We'll link them in the show notes here because they're, they're phenomenal.

Their customer support is great.

They're really affordable.

And they e-file everything for you, which is fantastic.

We use them for all of our clients because we literally cannot process

payroll as inexpensively as they can.

They've really just been killing it.

So if you're an S-corp, you need to be running.

At least one a year, most times, depending on the dollar value, at least

for a year, what I recommend doing is I recommend setting up payroll on a twice

a month schedule, which is known as semi.

Keep in mind, this is not the same as biweekly biweekly.

You get paid every other Friday.

Generally there are 26 pay periods in a year, meaning you get paid

26 times because there's 52 weeks.

So if you get paid every two weeks, 52 divided by two is 26.

However, have you get paid semimonthly that is twice per month,

which means that there are 24 pay periods per year instead of 26.

So with that, the reason that I like semimonthly over biweekly.

So my monthly, your pay date stay the same every month.

So if you pick like the first and the 16th or the fifth and the 21st or

the 10th and the 26th, or it doesn't matter, it lets you plan your personal

bills around that, which again, we're covering on our next episode.

It lets you plan your personal bills and gives you some stability,

which I think is really important.

Um, when you're a business owner.

Now, if it's biweekly, your pay dates will rotate throughout the month because

there are two months out of the year where you have three pay periods, meaning

that like your Friday dates will shift.

Some people really like that.

So.

Set it up.

How you like, um, some people will do monthly.

I don't love monthly payrolls simply because monthly payrolls require a lot

of cash up front for a lot of smaller business owners and gusta doesn't charge

extra for running multiple payrolls.

So I think from a personal finance and a personal budgeting standpoint and cashflow

it's much easier to do two per month.

So you've got payroll.

You're looking good.

You're really happy with it, but you need to take more money out.

Maybe you're buying a house, maybe, you know, you're paying yourself a bonus

or you're doing a profit distribution.

You can take additional money out of the account.

Just like you were a single member LLC or a sole proprietor.

It needs to be a little bit more legitimate though.

Once you're in essence.

So in this case, I recommend either an online transfer or a check.

I prefer a check and you just need to denote.

If it's a bonus, it should go through payroll.

If it's profit sharing or an owner's distribution, you

can run it through a check.

So I know again, we're going to recap because this is a lot and kind of dense.

So single member, LLC, sole proprietor.

Pay yourself.

However you choose.

My preferred methods are check and online transfers.

Doesn't matter if you pay yourself all of the money, or if you hoard

it all in your business account, you still get taxed on whatever your

profit is at the end of the year.

If you are an S-corp, you need to be running payroll in order

to maximize all of the tax benefits that come with an escort.

If you have questions about any of these, we cover all of these in

the self study course that get your finance shit together, linked on the

website, confident money podcast.com.

And it truly, this gets to be so much simpler than a

lot of us make it out to be.

We want, we want paying ourselves to be a little bit complicated, right?

Especially if you've worked, you know, a standard job or like a day job where,

you know, you're filling out your tax withholdings and it's on a set pay period.

And it's, you know, got a delay on when you get paid.

We're used to it being more complicated.

And I think coming into business, we're used to things in business

being a little bit more confusing or a little bit more complicated.

And this is one thing that really gets to be.

About as simple as we want it to be.

So again, if you liked this episode, please leave a five star review.

Tell me all about it.

Leave your Instagram handle in the comment on your review, because we

do pick one person every month that we're going to do a free strategy

session with, and I am so excited.

So make sure you tune in next week for the next episode.