Penny Kidd tells business owners to pay themselves a fixed salary instead of taking random withdrawals. Set aside percentages for taxes and profit first, then use what's left for expenses. A CPA can help determine the right tax withholding rate, usually 20 to 30 percent.
Chapters
Hey Wise Guys, if you have a business, are you paying yourself consistently or do you just take what you need from the business? That's not really how a job works. When you're the employee and the employer, you should have a fixed salary just like any other employee. I think this is one of the biggest mistakes that I see entrepreneurs make is when I ask them, what do you make? 'Now, what does the business make, but what do you make?' They will say, 'I don't know, I just take whatever I need from the business.' And you could be getting to the point where you're going to scramble the golden egg. So we don't want that. We want to make sure that you're running your business like a business, not like a hobby. So set aside a certain percentage for taxes and a certain percentage for your profit, and then pay yourself consistently. That helps you kind of back into what is the money that's left that can be used for expenses. If you find that you're paying yourself too much and that your business can't sustain that, then you need to back off on the salary or back off on the expenses in the business. You have a couple choices when you're the business owner, but remember that you went into business to be profitable. Including paying yourself and making an income. If you're not paying yourself something, you have a hobby. Don't forget the government gets their share, so make sure that you're figuring out with your CPA what that percentage should be, whether it's 20%, 25%, 30%. I've heard all kinds of numbers thrown around. Some like to be very conservative. I think it's best when you look at what did you need What percentage last year will help you drive what you need to set aside for this coming up year? Don't pay it late. Don't pay it in October. You're probably paying penalties. So talk to your CPA about filing it on time if you can, so that you're not spending extra money to have the delay of getting to pay it late. The IRS wants their money sooner than later, and the more money you make, the more probable it is that you should be paying quarterly taxes to avoid any penalties. So take a look at the expenses and the process in your business. Let me know if I can be of help.
