How To Pay Yourself As an LLC [Follow this or lose money]

how do you pay yourself if you are a new entrepreneur who has a sole proprietorship or single member llc let's talk about it what's up guys i'm prince deinel the founder of jumping jack tax where we help online businesses thrive and also assist the everyday person to do more than survive i want to talk about the topic that we all love paying ourselves right we work hard we put in the work we grind we sell our products we sell our services and we want to get paid but it gets a little tricky when we're talking about getting paid from our business so if you're somebody who's a sole proprietor or you have a single member llc we're going to talk about that today and i'm going to make this as simple as possible for you let's start off and get straight into it number one if you are a single member llc it's important for you to know that you are considered a disregarded entity to the irs unless you elect to be taxed as a corporation so if you are a disregarded entity that means that you're going to be taxed the same as a sole proprietor even if you have an llc you're still taxed exactly the same as a sole proprietor the only difference is with you having the llc you have asset protection with the llc separating you from the business but you're still being taxed exactly the same okay so now that we understand that let's move on into paying ourselves how do i pay myself with having a single member llc or being a sole proprietor well the how is easy all you're going to do when you open up that business account with your bank you're going to get yourself some checks and you can write yourself a check straight from your business account deposit it into your personal account or if you want to save yourself some trees which i love then just make an electronic transfer from your business account and send it over to your personal account that's the easy part of paying yourself that's the how okay because remember you are a single member llc or a sole proprietor you are the business you can easily pay yourself now the how is pretty easy the real question is how much do i pay myself that's the part that a lot of people have issues with and that's where we need to get to now before i even start talking about how much you need to pay yourself as an llc let's talk about this relationship between employee to entrepreneur now if you just started your new business straight out of covid or you've had your business within the past three three years or less sometimes five like i'm still considered a new entrepreneur believe it or not even as a tax professional i'm still a new entrepreneur with my business the thing is as employees we're used to getting paid every two weeks right we go ahead we do work we clock in we clock out we do it for five days work 40 hours a week at the end of two weeks we get our 80 hours we get our paycheck we expect it on friday early in the morning right but but when you are an entrepreneur you can put in all of the work right you can work more than 80 hours by the way entrepreneurs work 100 200 hours let me tell you i work from 4am in the morning until 11 p.m at night i'm putting in a massive amount of hours every single week i'm putting a massive amount of hours over two weeks and over a month but just because you put in that many hours as an entrepreneur does not mean that you can get paid by your business because your business your llc your single member llc simply may not have the funds to pay you because the business needs the funds in order to grow in order to pay for operations so it's important to note that sometimes as an entrepreneur you're not going to get paid you are going to starve you are going to have to make sacrifices you are going to have to put the business first you have taxes that you have to pay you have operational expenses you got to save some money you got to put forth money into innovations which i'll talk about in a second but you have to that's the first step to this here of how much to pay yourself get into the mindset of my business comes before me and i got to make sure the business is healthy in order for it to grow so that i am able to make more money and pay myself more in the future okay now that we have that out of the way and you understand that let's talk about before paying ourselves now how much to pay ourselves let's talk about understanding profits that's the first thing before we even talk about how much to pay ourselves we have to understand the profits okay so here's what i want you to do the first thing i want you to do is to look at your profit margins every two weeks or if you're not somebody that has a lot of volume happening right now look at it every month but get into the habit of doing it every two weeks the same way that you were getting paid at your job i want you to look at your business and look at the profits every two weeks how do you understand your profits very very simple let's say you have five thousand dollars in revenue that comes into your business your single member llc or as a sole proprietor you got five thousand dollars that came in it cost you two thousand dollars in order to make the five grand it could be operations your websites ads advertisements you could have uh product cost paying people whatever it may be you have two thousand dollars in expenses so now we do some basic math here five thousand in revenue two thousand in expenses that means that you now have a somewhere between a gross profit of three thousand dollars okay that's basic math now that you have three thousand dollars in profit that's the money that you're actually playing with when it comes to thinking about what to pay yourself now but we're not paying ourselves that three thousand dollars because we got more work we got to do here now that we're down to that three thousand dollars in profit that was the first thing you did and you should be doing that every two weeks or every month or if your business has a lot of volume every week and some people got to do it every day depending upon how much money you're making right you want to stay on top of your numbers so now that i understand that okay i have three thousand dollars i'm gonna write that down here all right don has three thousand dollars in profit see so i got my board here three thousand in profit okay now that i have three thousand in profit i'm not going to pay myself three thousand profit because remember i told you earlier the business comes first so there are certain things that you're going to have to allocate to that three thousand dollars now the first thing that you're gonna have to allocate to that three thousand is taxes okay you gotta pay taxes on those profits on that three thousand dollars that you made so here's how you calculate your taxes very simple this is going to be very rough a rough estimate this these are not accurate numbers okay here's how you do that now number one since you are a disregarded entity as a single member llc and like i said you're being taxed the same way that you that you are if you were a sole proprietor you're going to be paying self-employment tax okay that's also called se tax since you're not paying payroll taxes because you're not considered an employee to the business then the irs charges you self-employment tax that self-employment tax is 15.3 percent you pay that on all the profits that you earn from your business when it passes through to your schedule c all right 15.3 percent now that's not the only tax that you got to pay right because the irs all these different taxes that we gotta pay here is uh entrepreneurs so we pay our self-employment tax at 15.3 but you also have to pay federal taxes based on your tax bracket so i'm just going to say that my tax bracket is 22 okay so um if my tax bracket is 22 i also have to pay 22 percent here so now if i were to do some rough estimates here i gotta pick 22 percent in federal 15.3 percent in uh in self-employment tax that's roughly 38 in taxes that i have to pay okay roughly remember you can also get deductions and credits that can bring down your taxable income i'm just doing a rough estimate 38 in taxes that you're gonna have to allocate from that three thousand dollars and you're gonna have to put that to the side because you need to be making your payments uh your tax payments quarterly so now i got to pay 38 in taxes on that 3 000 okay we got that that's the first thing that i need to allocate so i'm going to set myself up with a bank account i'm going to set myself up with a separate bank account just for taxes and every time that every two weeks when i earn a profit i'm going to take that percentage that self-employment tax and whatever that percentage is in my tax bracket and if it comes out to be roughly 38 percent i'm gonna take 38 of that 3000 and i'm gonna put that right into that tax account i'm not going to touch it i could and from there i have the ability to pay my taxes quarterly and then obviously when january comes and i go ahead and i gotta file my taxes i don't have a i don't have a deficit i don't got a huge bill so that's the first allocation is taxes now the second allocation that you have to do as well is operations operational expenses okay you have operational expenses in order to run your business okay from like i said your website you got ads you got people you got to pay product calls all different or as a service whatever it may be you have operational expenses so let's say that your operational expenses are 15 right rough estimate again this is just an example this is not your business your numbers could be different so i'm going to say the operational expenses are 15 here i got to account for those and i'm going to set up a separate bank account just for operational expenses so that all of my bills in order to run the business are coming straight out of that account okay makes it so much easier for you when you are doing your bookkeeping right and you're doing your numbers at the end of the month you don't got all of this stuff going on in one account you have separate accounts for this stuff it makes things so much easier this is what i do it it eases your mind now you got your taxes you have your tax account you have your operations account and then number three you're going to have your savings okay now i would suggest that out of all of your profits you save about 10 why well because we just went through covet and a lot of businesses didn't make it you know why they didn't make it they didn't have any they weren't sitting on any cash let me tell you cash is king and when you're sitting on cash you're able to float during those times of kovy where people took huge hits to their businesses and their sales so you want to be saving 10 percent out of all your profits to ensure that your business doesn't shut down or something catastrophic happens just my suggestion so we're saving 10 percent and then the last one which is my favorite is innovation you have to account for innovation and i'm gonna say let's say innovation is seven percent so you wanna take seven percent of those profits out of that three thousand you wanna apply that to innovation that gives you the ability of being able to make investments into growing the business okay you might want to buy something new you want to get some new cameras you want to get this and this you have your innovation bank account that you've been putting together so that you can make you can actually make those purchases or make those investments into innovation that's not touching your savings account because your savings account is the what ifs of kovit where you need to actually survive with that money and savings so you're not going to use that to invest you're going to keep that there okay and then after taxes after operations after savings after innovations now you have number five and guess what number five is paying yourself with whatever is left so now it's time to pay yourself after making all of these allocations from that three thousand dollars in profit that you came down to when looking at your books and analyzing the revenue minus the expenses now that i'm done that allocation right i know i got to pay taxes which is self-employment tax and federal tax which is roughly 38 based off of my example which means that you need to put 1 140 into your tax bank account you want to leave that there and then i have my operational expenses which are about 15 roughly based on my example so you're going to put 450 into your operational expenses account and then you have your savings which i put 10 percent which is going to be 300 bucks out of 3 000 so i'm going to put that into my savings account and then i have my innovation account which is going to be seven percent so that's about 210 bucks and i'm gonna take that 210 and put that into my innovation account which now leaves me with how much left that i can get paid and i'm going to be able to pay myself 900 bucks and that means that you're left with you're left with 30 you had to pay 70 percent out of that profit to ensure that the business got paid first and that it handled all of its responsibilities and you were left with 30 out of that profit in order to pay yourself hey listen that's not bad and i want to just go back to it again when you're an entrepreneur this example is not always going to be the case you're going to have highs you're going to have lows you're going to have so much volatility in your business and in your revenue and your profits that this is an ideal situation when you're within your first year two years right and congratulations if you were if you are generating profit to to be able to pay yourself right now so this is an example of how to pay yourself and what are what did you what do you need to be thinking about how you should be allocating your profits to get down to how much to actually pay yourself as a single member llc as a sole proprietor now we'll end it off by saying this you want to keep really good records of every time that you make a distribution so each time that you pay yourself from your llc you are making a distribution an owner's district a member distribution when you make that distribution you want to make sure that you're you have great record keeping of all your distributions you want to make sure you have good record keeping of all of your expenses okay making making sure that you are that you are have some type of bookkeeping software established so that you can keep track of all of your expenses all of your distributions so it makes it easy during tax time for your financial professional to be able to help you so that my friends is how you pay yourself out of a single member llc and that is how much that you should be paying yourself in the simple system that you should get down to in order to find that number and like i said that number is always going to change and last thing i'll end it off with this because i know that this will most likely be a question well done if i'm paying myself out of my single member llc and i'm writing a check from my llc to myself am i paying taxes is my llc paying taxes and am i paying taxes no you're not because you're not being the company is not being taxed and then you are not being taxed you are the business remember as a disregarded entity you are considered a sole proprietor so you're the business all of your profits are going to flow through to you on your schedule c of your 1040 so you're only going to be taxed one time and you're going to be taxed on all of those profits so whether you took a dollar out of your business account or not let's say you didn't take any money out of your business account you didn't pay yourself regardless of the fact whatever those profits were regardless if you paid yourself or not you're still going to pay taxes on all those profits anyway okay because all the profits flow through you as a pass-through entity so you're not being taxed twice you're not being double taxed you're only being taxed one time which is going to be your self-employment tax plus your uh plus your federal taxes and possibly uh and state taxes as well could be local too and then in in later videos we'll start talking about how sometimes it's better to now elect as an uh elect to be taxed as an s corp which could save you a lot of money and self-employment taxes because being a disregarded entity as an llc is not actually saving you any taxes because you graduated from sole proprietorship to single member llc that doesn't save you any taxes it's just asset allocation i mean it's just uh asset protection i'm sorry so that's basically the strategy here hope you guys found value from this please like please subscribe on youtube um if you want more tax and financial tips um you can text uh tax help 247 4747 let me just double check to ensure that that is the right number um because i actually just set this up for you guys yes so you want to text tax help t-a-x-h-e-l-p-2474747 and um i'll be able to communicate back and forth with you to provide you with tax videos uh templates all different things to assist you with your business but again like comment subscribe share this with an entrepreneur tag an entrepreneur so that you guys can get the help that you need in order to allow your businesses to thrive and also for the everyday person for you to do more to survive again i'm prince darnell the founder of jumping jack tax one of the fastest growing virtual tax preparation companies in the country appreciate you for being here we're out see you next time

Channel: Prince Donnell

Views: 520,865

Keywords: prince donnell, dana chanel, jumping jack tax, jumping jack taxes, entrepreneur, self employment, self employment tax, payroll, how to pay myself as a new business, click funnels, linkedin, become a new entrepreneur, tax tips, LLC, Limited Liability Company, Sole Proprietor, PPP, PPP LOAN, SBA

Id: 5USA99XXV9g

Length: 18min 36sec (1116 seconds)

Published: Wed Nov 11 2020