Are You Paying Yourself Enough?
It’s time to pay yourself!
We are wrapping up our series “5 Tax Mistakes Small Business Owners MUST Avoid” with Mistake #5: Not Paying Yourself a Salary or Too Small a Salary.
If you have missed our previous mistakes you can find them here:
- Mistake #1 – Not using electronic filing systems.
- Mistake #2 – Not getting updated information early enough.
- Mistake # 3 – Not trusting a professional to file your forms and doing it yourself.
- Mistake #4 – Not Taking The Home Office Deduction.
This final mistake can be a very costly one and is a hot button for the IRS. There are actually guidelines for how much you must pay yourself and failure to do so can result in penalties and interest.
If you are not paying yourself what is going on for you financially?
Truly being in business means that you win as well as the company and everyone it pays. If this is not happening for you then there are other things we want to be looking at and soon. Life is too short for you not to win along the way!
If your company is profitable and you are structured as an entity with a C or S tax election then the IRS states you must pay yourself a “reasonable salary”. What is reasonable depends on your industry and typically means what you would pay someone else to do the work you are doing. At the very minimum you must pay yourself $7000 per year.
Failure to meet this threshold could result in penalties of up to 100% of your payroll taxes and a negligence penalty. In this case ignorance is not bliss!
Getting yourself established with payroll can be overwhelming with all of its time sensitive reporting requirements. Be sure to reach out to a professional for help. We are here to support you!
Each of us is the leader of our financial life and paying yourself enough so that your life works both in your business and in your life is critical.
The be a great leader in your financial life I encourage you to think like a CFO (Chief Financial Officer).
C – Creative
- Either learn or partner with a financial team that can help you with the best systems for you so you keep more of the money you make
F – Financial Intelligence
- Learn how to manage the gifts you have or they will fly right through your hands
O – Organized
- Don’t start April 15th! Your numbers are for you get organized and stay that way with systems that work for you
Not feeling like a CFO? We are here to help! Give us a call now while there is still room in our calendar for a CFO Review so we can get you started on the right foot with the best systems for you and finding all the write offs that are best for you!