As a small business owner, paying yourself properly isn’t just about taking money out — it’s about doing it smartly. No one wants an audit!
Here are 3 common ways to pay yourself while minimizing your tax burden:
Salary (W-2 Income)
✅ Required for S Corps
✅ Gives you access to retirement plans and Social Security
⚠️ Subject to payroll taxes
Owner’s Draw
✅ Common in sole proprietorships and partnerships
✅ Simple and flexible
⚠️ Not deductible as a business expense
⚠️ No payroll taxes, but you’ll pay self-employment tax
Distributions (for S Corps/LLCs)
✅ Usually not subject to self-employment tax
✅ Lower overall tax burden
⚠️ Must be “reasonable” salary first before taking distributions
Bonus Tips
*Keep personal and business finances separate
*Document everything — the IRS loves clarity
*Work with a CPA to ensure your compensation is structured for tax efficiency
Your paycheck should reward you AND reflect smart planning. Feel free to share this if you know someone navigating this right now.
Have questions about your setup? Our team is here for you!
