putting myself on payroll

[jlfrhf]

I am owner/operator of a small autobody shop LLC should I put myself on payroll? The previous owner had his wife on the payroll but not himself. What are the pros/cons of doing/not doing so? Our situation would allow me to put my wife on payroll just unsure if this is wise for tax reasons. Any insight will be greatly appreciated!

[Freelancier]

Mostly it means you'll end up reducing your quarterly estimated payments (since you'll be doing paycheck withholdings).

[cwillmoth]

How to survive as business - Pay yourself a little, the rest of the money you need you just take out as expenses and deal with the penalties if you were ever audited and found guilty (hard to prove)...Less than one percent of businesses are touched by the IRS so chances are in your favor.

You could also make up another business and pay it for services and then pull money out of that company. Not exactly a long term solution and I wouldnt do it with a lot of money but it is hard to prove anything in an audit because there not auditing both companies they would only audit one.

-Roommate did audits for the IRS for years...heard all the ways to get around it

[jamesray50]

I don't do taxes so I don't give tax advice. Everyone's situation is different. My advise would be to ask a reputable tax accountant. Just because one person does it one way does not mean it is the best way for you to do it.

Good luck!

[TAAccounting]

Hello,

There are several factors when considering going on payroll. The first of which, is the type of LLC you are.

-----LLC Sole-Proprietor means the owner cannot be on payroll. Instead, the owner is taxed on the net income and must pay self-employment tax at 15.3% to federal and (in Missouri) 6% to state. In this case, "Member's Draw" is simply a balance sheet movement and is not taxable. So, the more cash you take out during the year, the harder it is to pay taxes when year-end comes.

-----LLC S-Corp the owner on payroll and thus, avoid the self-employment tax completely. However, your net income is taxed at the ordinary tax rate (dictated by your yearly income -- which is dictated by your payroll). An S-Corp has "Distribution" which is taxed once and then can be taken by the owner, or left in the company for cash flow & company growth.

Both of these types of LLCs can have your wife on payroll as she is not an owner of the LLC. There are numerous other ways to plan the taxes, but putting yourself on payroll is a BIG step for many businesses -- as an error here can cost fortunes later in taxes. As an Operational-Cost Accountant, I've dealt with this on many occasions and I advise approaching it with a skilled accountant at your side.

Best Regads,
Tran Nguyen
Accountant

[Jama]

Don't mean to hijack this, but...I have an LLC, taxed federally as an S corp. Last year I quit paying self in March to pay off biz cc's. This year I have not paid self. I've had the Scorp, with payroll for the required 5 years. Now I need to pay the landlord the rent he has let me slide on for 2 yrs, etc.

Is payroll a requisite to keep the s corp filing? If not, how long can I go without paying self with an S corp? is it smarter to pay self something?

[TAAccounting]

Jama,

Yes, paying yourself through payroll is a requisite to staying as an S-Corp. If you have not paid yourself and you used it to pay down the company credit card then the net income that year will be treated as an LLC Sole-Proprietor. Thus, you would have to pay self-employment tax of 15.3%

It's always recommended to pay yourself something -- even if it is a small amount. Reducing yourself on payroll to pay off company debt is perfectly acceptable and justifiable.

There are two main ways to keep your s-corp while still paying off debt:
1) Continuing paying yourself, but reducing the amount you are paid to allocate fund to pay off debt. This, of course, will increase your net income and thus, higher taxes at the end of year
2) Continue paying yourself, but re-investing a portion of your pay back into the company to increase your equity. This will keep your year-end taxes low, but take much longer to pay off the debt

[Jama]

Thanks. I DID pay myself a bit last year for the first three months. Then I paid off the cc. So I have something for last year. So I purchased quickbooks pro with payroll last week, so that should do the paperwork. Does it matter that I have not paid myself this year yet if I pay myself something now? MUST I pay self EVERY month? Or can it be every quarter? to keep the S corp. all I'm concerned about is keeping the S corp.

So, since I DID pay myself something last year, not all the money is treated as a sole prop?

Jama

Yes, paying yourself through payroll is a requisite to staying as an S-Corp. If you have not paid yourself and you used it to pay down the company credit card then the net income that year will be treated as an LLC Sole-Proprietor. Thus, you would have to pay self-employment tax of 15.3%

It's always recommended to pay yourself something -- even if it is a small amount. Reducing yourself on payroll to pay off company debt is perfectly acceptable and justifiable.

There are two main ways to keep your s-corp while still paying off debt:
1) Continuing paying yourself, but reducing the amount you are paid to allocate fund to pay off debt. This, of course, will increase your net income and thus, higher taxes at the end of year
2) Continue paying yourself, but re-investing a portion of your pay back into the company to increase your equity. This will keep your year-end taxes low, but take much longer to pay off the debt[/QUOTE]

[TAAccounting]

Jama,

If you paid yourself a bit last year for Q1, you still retain your S-Corp.

There is no law or requirement on the regularity of payroll -- just as long as it occurs before year-end.

There are, however, obvious pros and cons to paying yourself Quarterly or Yearly. The big one that many S-Corps owner elect when they are still starting out or hit hard time is Yearly. The reason being, the owner & accountant can normally adjust your tax withholding so you do not owe when it comes time to file. However, this leaves you an entire year with living on distribution and that can be a bit tricky without a good accountant at the helm.

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