Paying the OwnerPosted by Celeste
There are a few different ways that you can account for money that you take out of your business. It is very important to do this properly so that you will be in good stead when tax time rolls around. In fact, before you even get to the point where you are going to be paying yourself, you will do well to consult with an accountant and get their specific advice regarding your situation.
If your business is a sole proprietorship, then the likely way that you will pay yourself is through an owner’s draw. This means that just as you put money into the business to start it (this is called the owner’s contribution) you can also take money out of it to pay your personal expenses. You should discuss the tax implications of paying yourself in this way with your accountant.
If you have taken the step of incorporating your business, then you will likely be paid as a part of the payroll of the company. This means that all of the usual payroll deductions will be taken off your cheque. In this case, it is important to make sure that you are paying yourself a reasonable amount for the work that you do for your “corporation”. Again, the tax implications of this will be specific to each case and must be carefully examined by your tax professional. If you are a shareholder of an incorporated company, or corporation, you might also consider paying yourself a dividend.
With so many methods of payment to consider, it is no wonder that some business owners try to use company funds to pay their personal expenses. While it may be tempting to simply take a bit out of the till, you will be better served to track your pay in the way that makes the most sense for your particular situation.
Has your accountant recommended that you pay yourself in a certain way? Have you had the sole proprietorship versus incorporation discussion with your accountant yet?