Are you paying yourself enough?
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.
In case you have missed our previous mistakes you can find them below:
- Mistake #1: Not Using Electronic Filing
- 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
Mistake #5 can be a very costly one, and is a hot button for the IRS.
There are actually guidelines for how much you must be paying yourself.
Failure to do so can result in penalties and interest.
So first I have a question for you…
When 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.
Therefore, 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.
Remember, 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.
Not sure where to get started? Be sure to grab my “Ultimate Money Management Blueprint”.
I invite you to explore this step by step blueprint where I share the inside scoop on exactly what steps you need to take to be on the path to effortless money management in a quicker easier and more fun way!
You can access it here! Enjoy.