💼 Do I Need to Pay Myself a Salary as a Business Owner?

One of the most common questions solo entrepreneurs ask once their business starts generating consistent income is: "Should I pay myself a salary?" The answer depends on your business structure—and choosing the right approach can impact both your tax liability and legal compliance.

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👤 If You're a Sole Proprietor or Single-Member LLC

Good news: You don’t need to pay yourself a formal salary.

In these structures, the IRS treats you and your business as the same entity. This means:

• You take an owner’s draw, not a salary.

• All profits flow through to your personal tax return via Schedule C.

• You're not considered an employee, so no payroll taxes or W-2s are involved.

But remember: You’re still responsible for self-employment tax (which covers Social Security and Medicare), so setting aside about 25–30% of profits for taxes is a smart move.

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🏢 If You're an S Corporation

Here’s where things change.

The IRS requires you to pay yourself a “reasonable salary” if you actively work in your business. That salary must be:

• Comparable to what you'd pay someone else to do your job.

• Paid through payroll, with proper withholding for income and payroll taxes.

• Reported via Form W-2 at year’s end.

Why it matters: You can still take additional profits as distributions, which are not subject to self-employment tax. This structure can save thousands in taxes—but only if you're following the rules and documenting everything properly.

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🏢 What About a C Corporation?

If you’ve chosen a C Corp, the IRS sees the business as a separate entity. You must:

• Pay yourself a salary if you work in the business.

• Withhold and pay payroll taxes just like any other employee.

Unlike an S Corp, all profits retained in the business are taxed at the corporate level, and distributions (dividends) are taxed again on your personal return.

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💡 Quick Recap

Structure	Salary Required?	How You Pay Yourself
Sole Prop	❌ No	Owner’s Draw
Single-Member LLC	❌ No	Owner’s Draw
S Corporation	✅ Yes	W-2 Salary + Distributions
C Corporation	✅ Yes	W-2 Salary

✏️ Final Thoughts

Paying yourself isn’t just about taking money out of the business—it’s about staying compliant, minimizing tax, and setting your business up for long-term success. If you're unsure what qualifies as a "reasonable salary" or how to run payroll, a CPA or tax advisor can help tailor the right plan for you.