New single-member LLC, first time business owner here - need resources on how to pay myself
Hey guys, this is my first business, and I’m engulfing all the information I can, but I feel a bit like a newborn baby deer on wobbly legs here. I’ve been asking questions to established business owners, doing webinars, etc., but I haven’t found the exact…
Hey guys, this is my first business, and I’m engulfing all the information I can, but I feel a bit like a newborn baby deer on wobbly legs here. I’ve been asking questions to established business owners, doing webinars, etc., but I haven’t found the exact information I feel like I need to know to be able to pay myself yet (after I get some revenue coming in, anyway). I have my second meeting with a (state program funded) small business counselor coming up in two weeks, so I’ll probably still be pre-revenue until then. But I want to have a better idea of how I’ll be paying myself and what I need to be setting aside for taxes ASAP. I feel like I want to check this by an accountant as well too and plant to hire one after I get some revenue coming in. Here’s some details about my business: - single-member LLC - pre-revenue right now - offering consulting and advanced data analysis services for a niche (and underserviced!) field - wanting to do contract (or subcontract) work for university researchers, private entities, and non-profits that have projects I can assist with; aiming for government contracts later on - working from home office - business is registered with the state - have an EIN number - business/address approved for home operations / special permissions in the county I reside in (waiting to receive permit) - I have a business checking account and online banking account set up as of last week - buying a domain and business email today - getting an online bookkeeping account today (checking out wave or one of the other options) - I have all the baseline pc/tech equipment I need to start working It seems like, though there’s plenty I still have left to do, that I am technically open for business at this point. To start out and begin building sources of revenue through the business, I am planning on applying for open job listings looking to hire or contacting groups hiring people that work in my field. I want to ask if I can do the type of work they’re looking for on a 1099 contract and be paid through my LLC. Later, once I build revenue and get my bearings with a base of current projects and some more equipment purchases/website built/etc., I want to formally pitch my business more with my service rate. I hope that makes sense. So, how do I pay myself through my business? The small business consultant I talked to (we’ve had one meeting so far and covered a lot) said the following information would be applicable to how I’m going about things at first: - basically, I would have a contract with the company, which may be for simply hourly work rn for assistance on their ongoing project - I will invoice them for hours worked on a weekly/biweekly basis - I will be paid through electronic direct deposit to the business checking account - from that amount, retain at least 15.3% of that amount in the business account for paying social security/medicare, etc. taxes on that revenue - pay self - transfer money to personal bank account - set aside amount I’ll be paying in federal and state taxes later for that amount of money I’m paying myself on my personal end - he said something about me classing myself as a distributor and paying myself as a distributor? And something about s-selection (or S-election)? - he also said I should run this plan by an accountant, ha So, does this sound like an outline for what I’ll need to do? It sounds like the counselor is saying I should elect S-corp status?
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This is the only answer you need, OP.
For a single member LLC, you just transfer funds from your business account to your personal account. For the accounting, you declare the transfer as an Owner Withdrawal so it stays on the balance sheet and doesn’t mess up your PnL. For taxes, I would save 30% of your revenue for taxes. That should cover most if not all of it. The 15.3% self employment tax is covered by the 30%. If you owe a large amount in taxes, you will have to start doing quarterly tax payments. Talk to a CPA about this. For S-Corp, I would wait until your net profit is around $100k. Once you elect S-Corp status, you have to become a formal employee and pay yourself a wage. This also involves starting payroll services and different filings throughout the year. Talk to your CPA for this and ask as many questions as you can think of so you understand the whole thing.
Use. Gusto. S corp rules are difficult. Will need a cpa. Worth it if higher revenue.
As a single-member LLC, you pay yourself via owner's draw. Just transfer money from your separate business checking to your personal account. You're taxed on the LLC's net profit regardless of how much you actually draw. On the 15.3% that's SE tax on net profit, plus you'll owe regular income tax on top. A more realistic reserve is 25-30% of net profit set aside, not just 15.3%. You'll pay this via quarterly estimated tax payments. A sole proprietor/single-member LLC you're not an employee or distributor, you're just taking draws of your own profit. For S Corp, that's a separate, optional tax election where you'd become a W-2 employee of your own company, run payroll, pay yourself a "reasonable salary," and take remaining profit as distributions (which avoid SE tax). It only starts to make sense once you're clearing over 60k+ in net profit. The payroll/compliance overhead isn't worth it before that. At pre-revenue, this isn't relevant yet.
You are making way way too complicate. Open a separate checking and savings account. All income goes into the checking, all expenses come out of the savings. (run through a CC if you want to.) Keep track of invoices and payments. What is left at the end of the month is profit. Put 25% in the savings account and move 75% to your personal checking. Pay quarterly estimates from your savings account. Will work for the first 6 months or so, when you grow, use QB for Solo.