Are you paying yourself like a business owner, or just transferring money whenever you need it?
Because if you’re doing it wrong, the IRS is the one profiting, not you.
This is one of the most common (and costly) mistakes I see with business owners. Most either overpay on taxes or set themselves up for an IRS red flag, simply because they don’t understand the strategy behind how to pay themselves properly.
Here’s what you need to know:
If your business is set up as an LLC, how you’re taxed determines how you pay yourself. A single-member LLC or sole proprietorship? You’re taxed on the net profit of the business, whether you take a paycheck or not. That means your draws aren’t tax-deductible, and you’re responsible for self-employment taxes either way.
But here’s where it gets strategic.
If you’re taxed as an S Corporation, you get access to one of the most powerful tools in the tax code: the ability to split your income between W-2 salary and distributions. This matters because while your salary is subject to payroll taxes, your distributions are not. That split is how many business owners legally save thousands each year.
Of course, it has to be done right. Too low a salary? That’s a red flag. Too high? You’re overpaying. You need to find that IRS-approved sweet spot.
Paying yourself the right way isn’t just about cutting a check, it’s about aligning your compensation with your business structure and financial goals. This is how we help our clients build not just income, but long-term wealth and legacy.
If you’ve built a successful business, you deserve to pay yourself properly, not to splurge, but to set up systems that fuel growth and secure your future. That means knowing the right way to take money out of your business, based on your entity structure and long-term goals. When done strategically, your paycheck becomes a tool for tax savings and wealth building.
Watch my video: How to Pay Yourself the Right Way and Save on Taxes, and you’ll learn exactly how to structure your payments, avoid IRS issues, and keep more of what you earn.