What is the best way to pay yourself from a small business?

Question

I am a small business owner and my partners seem to think the best way to pay ourselves is a payroll check. However, we are paying double taxes (personal and business payroll taxes).

I contend there is an easier way to pay our salary, ie Draw or some sort of way.

This business has annual sales of 500,000 per year and has a 60% profit margin. We employ 3 people.

Answer 1

More information is needed. Is the business a partnership, a regular corporation (Subchapter C corporation) or an S-Corp (Subchapter S corporation)?

If you are trying to evade payroll taxes, you are playing with fire. The law requires that you pay yourselves wages/salaries that are consistent with your business type.

Answer 2

First thing is first, you need to change the way you have organized your business. To avoid the double tax you need to set yourselves up as an LLC. Go to a lawyer draw up the contracts and save yourselves a lot of money and headaches.

Your partners are right though. If you just take money without recording it to avoid taxes that is called embezzlement and you can serve hard time for that. The nice thing about an LLC is that is taxed much like a sole proprietor thus avoiding double taxation.

If you are the only "owner" then set yourself up as an S corp. Then pay yourself a "market wage" you will have to pay the match on FICA on your wage. Then take the rest as dividends only paying 15% dividend tax. I am set up this way. I only pay myself a 25k salary and take the rest as dividends.