On this episode we are going to be talking about how should you a small business owner be paying yourself salary dividend draw setup as an S corp, although you have a flow through an LLC, I’ll get into all that. Stay tuned.

 𝐉𝐨𝐢𝐧 𝐎𝐮𝐫 𝐏𝐫𝐢𝐯𝐚𝐭𝐞 𝐅𝐚𝐜𝐞𝐛𝐨𝐨𝐤 𝐆𝐫𝐨𝐮𝐩 
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Hey, what’s up guys, welcome back to this channel. My name is Justin Colby. And I’m the host talking all things business, real estate as well as entrepreneurship. And on today, we are going to be talking about profits. Everyone is in business for profits. So let’s talk about the best ways you can pay yourself and what I would suggest or at least what I am set up on to make sure that I’m paying my taxes, but I’m paying as little amount of taxes as possible. So first of all, you got to ask yourself how you want to elect to be taxed, you actually have a choice, you can set up your business as an LLC, and it’s a single member LLC, and how that looks. If you are not set up as an S corp, managing member of an LLC, if it’s just you, that LLC all of that revenue is actually looked upon as your own income, and you’re taxed as such. Now, before we go any further, let’s be very clear people, I am not a licensed accountant, I do spend a lot of money on one. But I am not. And this is not tax advice. This is just my thoughts on how I’ve structured my business. And hopefully that can be helpful to you. So as I mentioned, if you do not set yourself up as an S corp, LLC, then you are actually going to be taxed on all of the income that comes in. Now. Here’s a big challenge with that. While it’s totally legal. And I know it sounds like the challenge is taxes, which they are the thing that most entrepreneurs do and small business owners do is they take all the money you see, they think, well, if it’s gonna be taxed, I should take it right now in concept, yes, it is your money to take. However, the challenge that most business owners don’t realize is they don’t have the financial literacy or understanding to think through the operational costs overhead as well as growth of their business. So they take all their money. And when it comes time to, you know, spend money on marketing, acquire new clients, you know, maybe even travel or take a client out to dinner, there’s no money left in the account to actually do these things. You took all the money and you drain the account. So when it’s time to pay rent, or anything else, there’s no money left to do. So that can be very challenging and very tricky. Now, I would really recommend, regardless of what how I’ve set up my business, and how I kind of suggest for people to be setting up their business, you talk to your accountant, very important, I highly suggest that if you could please do me a favor, smash the like button for me, I’d really appreciate it to help the YouTube Gods shine light on this channel. And that would really help me I appreciate that. So obviously, as you can tell, I have set up an LLC as a flow through into an S Corp. So what does that mean? Well, my LLC, quite literally as a flow through there’s not a whole lot there, the money goes into it, but then it goes it flows directly into the S Corp. The S corporation pays me a salary plus distributions or some people will call them dividends, the semantics are irrelevant. But you it is set up that way very specifically, because by tax law, at least I do have to pay myself what is called a reasonable salary. Now you might ask what is reasonable? And if you’re making a million dollars in revenue, and you have a million dollars to pay into a S corp, should you be taking a million dollars in salary? I would encourage you not to can you take $10,000 in salary and pay yourself $990,000 in distribution. I’d also encourage you not to again, talk to your accountant. However, this ability to do an S corp managing member of a LLC is really just a tax play. You see now I Justin Colby. I’m not taxed on 100% of the revenue that comes in through the LLC. I am ultimately taxed on what comes into the S Corp. And then also I am taxed on the salary I’m taking from my S corp, not necessarily the distributions, the distributions are not so subject to the self employment tax. So I actually have some savings by giving myself a higher distribution or dividend, if you will, then I will by giving myself a salary, my salary is taxed on self employment tax. So when it’s all said and done, this structure for me saves me roughly about 15% in taxes. Now, as with anything, I mentioned this previously, but I want to do a little deeper dive here, smash the like button. Now, in all seriousness, I want to talk to you guys about how you allocate money. Again, even if you set yourself up as a S corp, managing member of an LLC or corporation Corporation, managing that LLC, I do not encourage you to take all the money off the table as your business needs, viability to grow. So I would really encourage you to have a minimum of three months, cash in your LLC account, to make sure that in times that you may need it in crunch time, you’re able to float for three months to pay all of the operational costs. I can’t tell you what that number would be. But you need to understand enough of your numbers to realize, you know, how much are any other salaries for the LLC, how much is your office rent, etc, etc. And you want to have at least three months worth of cash in that LLC bank account. In case of a rainy day, I would also set aside a decent amount of money for growth. You see, we’re all entrepreneurs and we don’t just want to do okay or be okay, we want to grow and continue to get more revenue and food or so our income can actually increase as well. So I’d highly encourage you to set aside enough money. For example, if I spend $10,000, in marketing each and every month as an easy example, for numbers, I want to make sure I probably have roughly $30,000 in my bank account on top of let’s just say the other 30,000 that will cover operational expenses, I want another $30,000 in there for the opportunity to grow and start to generate more clientele more business and ultimately, more revenue. That is how I set up my business, I set aside a decent amount of cash that I don’t pull out of the LLC, before it goes to my escort. If you’re liking this information is resonating with you make sure you’re smashing that like button. And if you haven’t yet, make sure you subscribe, I’d really appreciate it. Now, the thing that is very difficult for myself and many entrepreneurs is making sure you account for the taxes that you’re going to pay from the dividend or the distribution, I actually also pay a bookkeeper to make sure that I am setting aside enough money from that distribution that I can account for what is the projected taxation on the money that I pull. Now remember, I’m saving some money by not being taxed on self employment tax. But nonetheless, I’m going to get taxed on that money. And I need to pay up. So I also pay a bookkeeper to make sure I’m in alignment. So at the end of the year, I don’t take on this massive tax bill, there may be something left over because not exactly a perfect science, but I’m paying my taxes throughout the year. And that way at the end of the year, I should be as close to paid in full as possible. Because I make sure I allocate enough from the dividend I pulled remember not the salary, but the dividend that I can pay each and every month. So as I mentioned, how I’m set up is I’m an LLC and I have a managing member, which is an S Corp. My S corp ultimately has money flow through the LLC to it. The S corp then pays me a salary plus dividend, I, again, you’re going to talk to your accountant about what you believe is a reasonable salary. It can’t be $10,000, I definitely wouldn’t suggest it being a million dollars per se, you want to make sure you two are on the same page. One thing that is very true is entrepreneurs a lot of times sacrifice their own pay to keep their business running. Now while I would encourage you to do that, on the front end of your journey as an entrepreneur, make sure that you’re generating enough revenue that you have money in your account that you feel safe to start to allocate money to pay yourself a salary or distribution. I also want to make sure that you focus on paying yourself so you can pay your bills so you can live a nice life. There’s a great book, I highly encourage you guys to read for all entrepreneurs and it’s not a boring tax book either. It’s called profit first. It’s an incredible book. I encourage you to go out and read it. Download the audible version of it or however you read these books. There. He is going to teach you Mike milkovich incredible brilliant business mind is going to teach you about five different bank accounts and how to set them all up. So you have a cap x account you have a profit account, you have an operating account, etc. and how to set them up so that your business quite literally monthly is allocating money to each one of these so that you make sure that you have enough money for all things. And, most importantly, yourself. Too many entrepreneurs to many small business owners. Forget about that. They hustled, they grind, they stack chips, because they’re so scared that they’re going to go out of business that they don’t pay themselves. First, you got to make sure you pay yourself first. On the other side of that coin. There are some entrepreneurs that pay themselves every dollar out of the business. I mentioned this earlier on the video, please, please go read or listen to profit first. If you are currently doing that, it is no way to run a business you want to make sure that you have operating cash in your bank at every moment, like I’ve said three months minimum. You also want to make sure you have a growth account basically so that you can allocate more money to get more clientele however that looks for you. I hope you enjoyed this. I hope this made a lot of sense. If you have any questions at all, make sure to comment them below. Smash that Like button for me. And if you are interested in real estate investing and would like a little more guidance there. Make sure go to the science of flipping calm. There are a ton of free resources there as well as you can actually jump on a call with me or some of my team to see if we can help answer further questions. I hope this finds you well and healthy. I’ll see you guys on the next video. Peace.