As the owner of your business,
you are the decider of salaries for your staff. That's true for your own salary
too. While there is no one-size-fits-all formula for determining how much to
pay yourself, here are two factors to consider.
●
Profitability. Regularly review and update your
firm's cash flow projections to determine the salary level you can sustain
while keeping the business profitable. Your compensation may be minimal as you
start up your business. However, beware of going too long without paying yourself
a salary, and be sure to document that you're in business to make a profit.
Why? Otherwise the IRS may view your perpetually unprofitable business as a
hobby – a sham enterprise aimed at avoiding taxes. That can lead to unfavorable
tax consequences.
●
The market. If you were working for someone
else, what would they pay for your skills and knowledge? When you've answered
that question, discuss salary levels with small business groups and colleagues
in your geographic area and industry. Check out the Department of Labor and
Small Business Administration websites for salary information and national
compensation surveys. In the early stages of your business, you may not be able
to afford to pay yourself a salary commensurate with the higher ranges, but you'll
learn what's reasonable.
For assistance with payroll
issues or salary concerns, contact our office.
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