Do you own your own business?
Are you on payroll?
Should you be?
Usually the answer is simple.
Payroll vs No Payroll:
- Sole Proprietor: As a sole proprietor payroll for you, as the business owner, is not on the table, as all monies flow to the personal tax return.
- Corporation: As the owner of an S-corporation, you are required to establish payroll, even for yourself. The reason for this, in the eyes of the IRS you are not only the owner, you are also an employee. You are required to take a “reasonable” wage. The best way to determine if the wage you have established is reasonable is to meet with your accountant. It is recommended you do this at least twice a year, more if the company is very productive. The company absorbs the payroll taxes, minus the portion applicable to the employee, and you avoid a large amount of self-employment tax.
Always remember to discuss any business changes with your accountant to ensure understanding of the expectations for the business.