How Should You Pay Yourself as a Business Owner? Here’s What You Need to Know

One of the most common—and most confusing—questions for small business owners is:
“How do I pay myself?”

The answer depends on your business structure, profitability, and long-term financial strategy. The two most common methods are:

1. Owner’s Draw

If you operate as a sole proprietor, single-member LLC, or partnership, you typically pay yourself through an owner’s draw. This means you withdraw money from your business account for personal use. It’s not considered a salary, and no taxes are withheld at the time of the draw.

Instead, you’ll pay self-employment tax and income tax on your net business income when you file your personal return—whether or not you took the full amount out.

2. Payroll (W-2)

If your business is an S Corporation or C Corporation, the IRS requires you to pay yourself a reasonable salary through payroll. That means you’ll need to:
– Run payroll through a system that handles tax withholding
– Pay employer payroll taxes
– File W-2s and quarterly payroll reports

The benefit? You may reduce self-employment tax liability by splitting your compensation between W-2 wages and shareholder distributions.

So… Which Is Better?

The right payment method depends on:
– Your business entity type
– Your net profit
– Your tax planning strategy

The best advice? Talk to a tax professional to understand your full tax implications. But if you’re not sure how to track these payments or set up your books, that’s where we can help.

Schedule a free call with Dr. Bryan Raya, QuickBooks ProAdvisor, for help with bookkeeping, tracking owner’s draws, or setting up payroll:
https://calendly.com/dbr_bookkeeping/30-minute-zoom-consultation-call

Let’s start Doing Business Right.

FAQ: How to Pay Yourself as a Small Business Owner

Should I pay myself as an owner draw or through payroll?
It depends on your business structure. Sole proprietors use draws. S-Corps usually require W-2 payroll.

Do I pay taxes on an owner’s draw?
Yes, but not at the time of the draw. Taxes are paid on net income through your personal return.

Can QuickBooks help me track this?
Yes! QuickBooks can track both owner’s draws and payroll transactions.

Where do I get help?
Book a call with Dr. Bryan Raya to get personalized bookkeeping support.

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