When you started your company, you may not have taken a salary until you felt that the business could afford it. As a business owner, you don’t really have a set salary in most cases. Therefore, it can be difficult to determine how you get paid. These are some guidelines.

Members of an LLC

If you own an LLC, you are a member, not an employee. Unlike an employee of the company, these owners do not have set salaries or take a salary of any kind. If you are the sole owner of the business, you should draw money out. This is a direct payment. It does not have taxes deducted from it and does not show up on your tax return. At the end of the quarter or year, you pay taxes on the net business income or losses, whether you receive this money or not.

If you have partners in your LLC, you take distributions of the company profits from the capital account. You base your distribution on your share of the company you laid out in your operating agreement.

Owners of a Sole Proprietorship

If you own a sole proprietorship, you draw money out of the account like you would if you were the sole owner of an LLC. You receive the amount right out of your capital account and do not pay taxes on this amount. It is not considered income. Instead, you pay taxes on your business income at the end of the year or quarter.

Co-Owners of a Partnership

Like an LLC with more than one owner, if you own a partnership with other individuals, you take a distribution of the profits. You also will not receive a specific salary from these types of businesses. Your taxes are the result of your ownership percentage of the company. If you have one other partner, you will pay taxes on 50% of the company’s profits.

S-Corporation Owners

If you own an S-corporation, you should receive a salary. However, this salary is contingent upon whether you run the company every day. If you serve as a manager and show up to the office, you become an employee and receive a salary. Employment taxes are taken out of your checks. In addition, if you own shares in the company and take some of the profits as distributions, the IRS treats those distributions similar to those of a partnership. You cannot minimize your employment taxes by paying yourself a low salary. Instead, you have to receive a reasonable salary.

Before you choose your business structure, consider how and when you can take money out of the company, whether through salary, distribution or draw.