Hello everyone. I have read some great topics on here about LLC's & Inc's. (actually all the forum topics posted on this site are awesome!)
I wanted to give some friendly advice, from my experience of owning a business, on how to pay yourself once you start making money.
I think it is really important to understand the process, because a friend of mine who owns a business never "payed" himself. Instead he "lived off the business" and the IRS nailed him to the wall. He had to pay over 30K in penalties and back taxes.
Whether you want to pay yourself weekly,bi-weekly, or monthly you, the business owner, are actually considered an "employee" to where you will issue yourself a check from your business account.
First thing you have to do is keep a record of when you pay yourself on a payroll ledger. A payroll ledger has boxes where you enter from left to right the date, name , gross, FICA, FED, MED, State, Mis, and ends with net pay. There are also spaces to enter monthly totals, quartly totals, 1/2 year totals and end of the year totals. You need to keep good track of your totals, because every month you have to pay payroll taxes. (from what I remember, payroll taxes are due by the 15th of the month. I always payed them within the first week of the month I never messed around with my employees withholdings!)
Say you want to pay yourself for example $500 per week. This info is from the 2009, IRS employer's tax guide.
FICA= gross pay 500 times 6.2%=$31
Fed tax =based on marital status determined from the table in the employers tax guide, for 500 dollars a week the withholding is $36, married with 0 exemptions and $59. single and 0 exemptions.
Medicare: gross times 1.45%=$7.25
state tax (for CT) is $9.82. The state book is the same as the FED book.
Subtract all witholdings from 500$ and you get:$415.93 net pay.
At the end of the month you add up all withholding totals, FICA, FED, MED , and STATE because you have to pay payroll tax . all registered business should receive 941 payment coupons from the IRS, that is what you use to pay your payroll taxes either on-line or deposited at the bank where your business account is.
(I always went to the bank never did it on-line)
When paying payroll taxes, there are some month where you will have 5 pay periods and some month you will have 4, you match the FICA & the MED. say for the month your FICA totals were: $124.00 you have to match that =$248+monlthy fed tax, example of:$144.00+MED times 2= $58. Add them all up and that is what you will pay in payroll taxes for that specific month:$450.00 to the IRS. Then you add up the state and mail them a seperate check, just in state withholding. $9.82 times 4=$39.28.
Or you can cut checks and then 1099 yourself at the end of the year. I personally would not do that because you will need to have some serious cash on hand @ the end of the year.
I advise you use a good accountant who can help you when you have questions but this is something anyone can do.
What doesn't kill me,,makes me stronger!