Paying yourself as a small business owner isn’t just about transferring money from your business to your personal account, it’s a decision that should be guided by your business structure and long-term goals.
If your business is structured as an S Corporation or C Corporation, you’re typically required to pay yourself a salary. This salary should reflect a “reasonable compensation” standard, meaning it aligns with what others in your role and industry are earning. On the other hand, sole proprietors usually take owner distributions instead of a formal salary.
No matter your structure, it’s smart to create a compensation plan early. Even if your business isn’t generating steady revenue yet, putting a plan in place helps you stay organized and compliant as you grow.
When deciding how much to pay yourself, aim for a balance. Your income should meet your personal financial needs while also allowing your business to retain enough cash to operate and expand. As your company grows, your salary should too.
For S and C Corporation owners especially, consider getting a reasonable compensation analysis. This formal assessment can help justify your salary level and protect you in the event of an IRS audit.
Still uncertain about how to handle your pay? We’re here to help. Schedule a consultation with our office to get personalized advice and ensure your compensation strategy supports both you and your business.
At Aligned CPA, we specialize in helping small business owners make confident, compliant financial decisions, including how and when to pay themselves.
Joy Lutz, CPA, CTP
As the founder of Aligned CPA, Joy has built a firm that is your strategic financial partner. With a growth centric approach, we build meaningful relationships with our clients because we value their success as much as our own.
Positioning ourselves as the tax and financial strategists for your business, we help you make empowered, financial-based business decisions that lead to long term success.