I'm A Business Owner: How Should I Pay Myself? | Desarie Anderson | Skillshare

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I'm A Business Owner: How Should I Pay Myself?

teacher avatar Desarie Anderson, Cash Flow Management

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

8 Lessons (47m)
    • 1. Introduction

      2:02
    • 2. Lesson 1 Sole Proprietorship

      7:58
    • 3. Lesson 2 Single Member LLC

      4:11
    • 4. Lesson 3 Partnerships

      10:32
    • 5. Lesson 4 Multi Member LLC

      4:35
    • 6. Lesson 5 S Corporation

      10:38
    • 7. Lesson 6 C Corporation

      6:13
    • 8. The Assignment

      0:51
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About This Class

I am a business owner.  Should I set myself up on payroll?  Should I pay myself through a draw? Should I pay myself through a distribution?  Should I set up a guaranteed payment system to pay myself?  All of these options can confuse the best of us.  

As a small business owner,  how many times have you wondered if you are paying yourself per IRS  requirements?  This class explains how owners of the most common types of businesses in the United States are required by law to pay themselves. 

Getting it wrong can cost you and your business a lot of money in penalties and interest.

Meet Your Teacher

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Desarie Anderson

Cash Flow Management

Teacher

I am originally from London, England but currently live in Atlanta, GA with my husband David.

I always joke that I have had the distinct pleasure of using both the left and right side of my brain. I owned and operated a hair salon for over 17 years (Right side), and now I own a small Tax and Accounting practice (Left side). So you can get your hair cut & colored and get your taxes done all in one visit.

I graduated from Georgia State University with a BA in Accounting. I am a Georgia CPA and an IRS Enrolled Agent. I am also a certified QuickBooks online Pro advisor.

In addition to providing small businesses with bookkeeping and accounting services, I am passionate about helping small businesses manage their cash flow. No business can survive without proper c... See full profile

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Transcripts

1. Introduction: Hi, I'm Misery Anderson, C. P A. With Anderson accounting as a C. P. A. One of the main questions my clients ask me is have how they should pay themselves as a business owner. Based on this most frequently asked question, I have decided to create a class that explains the different ways small business owners can pay themselves. I hope this class helps to clarify your question. I would like to begin this class by emphasizing that the information I am providing is only for owners doing business in the United States. So if you have signed up for this class, you do not do business in the US Now would be a great time for you to exit the building. Everybody else sit tight and enjoy the ride. For the purpose of this class, we're going to be looking at the most common types of business entities set up in the United States. We're going to go over each business type one at a time for each business. I will discuss how the owner should pay him or herself whether or not your payment will show up on your tax return and whether you have to pay self employment tax. I'll also briefly discuss where each payments appears on the business's financial statement . The types of business set ups we will be going over are as follows. Sole proprietor, Single Member LLC, a partnership Multiple member LLC's See corporations and the S Corporation. Our first lesson is going to cover sole proprietors, so I'll see you in the first lesson. 2. Lesson 1 Sole Proprietorship: in this lesson, we're going to go over the sole proprietor form of business To be a sole proprietor. You don't have to take any formal or legal steps at the federal or the state or even the local level, as long as you are the only owner off that business. You're also you automatically become a super prize there simply by conducting business with whomever. Also, depending upon the city or town where you set up, you may need to register your business or obtain some some sort of business or occupancy licence, so make sure you check with your local or city government for information about local licenses. A sole proprietorship is a one person business. It's the simplest form of business to start. You could just wake up one morning out out of the blue and just decided to start a business on that same day, and it's OK. Nothing else is required other than the fact that you've decided to start a business. If you are a sole proprietor, you are not an employee of your business, and therefore you do not take a salary in the form of irregular paycheck. So that means that no fighter taxes, which is Social Security and Medicare, are deducted and also no federal or state income taxes withheld. Instead, you're required to pay self employment tax on your personal 10 40 tax return. So how does this surprise you? Get paid most so propriety usually gets paid by taking something called a drawer from the profits of the business. So any amount taken out of the business by a super price is usually called the drawer because these amounts draw down the owners capital account. A capital account is an ownership accounts, and we'll talk about that a little bit later. And owners drawer is the amount taken out by the owner, obvious or proprietorship for his or her personal use. So when you take money out of your business and you're paying your credit card bills or paying your mortgage your car note, that's all considered a drawer. If it's coming out of your business, it's called a drawer because money basically is drawn out from the business. Also, the money that s sole proprietor draws out of his or her business doesn't show up directly on his or her personal tax return because the drawer is not part off the profit and loss statement, but instead it shows up on the balance sheet. Okay, so let's take a look at a balance sheet and income statements side by side so that you can see how the drawer flows through from the income statement to the balance sheets and then onto your tax return, as I mentioned earlier, what a sole proprietor pays, or rather, what sole proprietor draws out of his or her account does not show up directly on the tax return. So let's look at how the money flows through from the income statement to the bat in sheets and then to the tax return. So a sole proprietor has a business. You have your income and you have your expenses, so income minus expenses equals net income. So this is what this put particular business netted. A given year, it was $5420.90. The net income, which is on the income statement, then flows onto the balance sheet so it goes from the income statement onto the balance sheet. And here's where you see the net income on the balance sheet. Now an owner of a business takes a droll so no Nurcan take out taken draw out, however much money they want from their accounts, as long as they have enough equity, enough ownership in the accounts to keep on drawing. As you can see, this is the equity accounts and this within this equity accounts, the owner has contributed $1200. Hell, she has drawn out 8000 $180 they still have a positive equity from possibly from prior years. And then? Then there's a net income. So as it stands, the total amount of equity that this owner has in the business is $18,000 so they can keep on drawing and drawing and drawing now. As you see this year, the owner drew out $8180 but the net income it was only five. Hunt, $5420. So this person is not going to get taxed on what they drew out. They're only going to get taxed on what the net income waas for that particular year. In this case, it's $5400 then this $5400 which is a net income for the air. Then it's transfers to the personal tax return, and it goes online 12 which is business income or loss from a Schedule C business. Also, prizes are Schedule C businesses, and they have toe prepare their tax return using a form Schedule C. I know some of you are probably wondering, wondering why is it that the owner does not pay tax on what he or she actually withdraws from the business, but instead only pays tax on the net income? As you can see, the owner withdrew $8100 but the net income was 5400 and the only paying tax on 54. This is because everything that she's see under the equity account has already been taxed except net income. They were all tax in prior years. So owners contribution means that the owner contributed money to the business that particular year. For whatever reason, owners equity is comprised off net income from prior years. So which means that this $19,613 has already been taxed in prior years. So as the owner starts to withdraw money from his or her accounts, they're drawing on money that has already been taxed. And that's why what the owner actually draws from the accounts is not what you see on the tax return. The only amounts that's part off the equity that has not yet been taxed is the net income. And that's the reason why an owner only pays money on net income and not on what they draw out all their accounts on a yearly basis. So in summary, a sole proprietorship pays themselves with the droll. The draw does not show up on the owners tax return. Also, proprieties is have to pay self employment tax, and the amount of so proprietor pays himself, which is which is called a draw, shows up on the balance sheet and not the income statement. I hope all of this made sense. I know it's a bit confusing, but hopefully now you understand how a an individual who is a sole proprietor or an independent contractor is required to pay themselves 3. Lesson 2 Single Member LLC: in this lesson, we're going to go over the single member at l. C. Form of business. A good number of business owners are not aware that on a federal level, this single member LLCs no difference from a sole proprietorship. A single member, LoC is a sole proprietor who has registered their business with the state to be recognized by the state as a limited liability company. In most cases, having the limited liability status protects a business owner from personal liability if they should ever get sued by a customer or by a client. In other words, you're protecting your personal assets from being part of the business lawsuit. Now, like I tell most of my clients, I'm not an attorney. So I strongly suggest that you speak with your lawyer about the legal benefits and also the legal compliance requirements. Often, NLC I only give tax advice, and I try to leave the legal stuff to the attorneys. A single member, L. C. Is a one person business. It's a little bit more complicated to form than that, then a sole proprietorship. In order to receive the protection Often LLC, which is a limited liability company, your business must be registered with the state, which makes forming an egg, forming an LLC a little bit more complicated and starting a sole proprietorship. So the question is, how does the owner of a single member at L. C pay themselves? An LLC is a form of business structure that is only recognized by the states and not by the federal government. So in other words, the ire s doesn't recognize the L. L. C as a stand alone business and because of that LLC's themselves, do not pay taxes. Instead, the profits next on the owner's personal tax return. So from my description off the LLC structure off, I know you've probably figured out by now that the owner of an LLC pais him or herself the exact same way as a sole proprietor. Since there is, since there is no difference between the two in the eyes, off the ire s so in the eyes of the ire, s a single member LLC is exactly the same as a sole proprietor. Therefore, they're taxed in the exact same way. In that case, we just cross out sole proprietor under business type and substituted full single member LLC everything else stays the same. If you need a refresher understanding how sole proprietors paid themselves, you can go back to Lesson one and get all the information from there. One other thing to note, although the sole proprietor business structure is exactly the same for federal tax purposes as l see there is, there is one major distinction for federal tax purposes. A single member LLC can elect to be taxed as a corporation, and this is very important to know, because if a single member LLC makes the election to be taxed as a corporation, the owner is no longer allowed to pay themselves as a sole proprietor. They will now have to pay themselves in the same manner as whichever entity they elected to be taxed as so. For example, if a single member L C elects to be taxed as a corporation, then now they are required to pay themselves as a corporation, and we will be discussing these other types of entities in upcoming lessons, and I'll see you in the next lesson 4. Lesson 3 Partnerships: in this lesson, we're going to go over the partnership form of business to be considered a partnership. There must be in agreement between two or more people to conduct a business activity. The agreements could be formally expressed in writing or with a simple handshake. Or it could be implied by the mere fact that that you and somebody else find yourself performing a business activity. Although a partnership can be formed by just a simple handshake, I think it's very important to get the advice often attorney before agreeing to partner with another person. There are certain legal aspects that you should take into consideration. If nothing else, please make sure that you at least drew up and signed a partnership agreement. I can't tell you how many times I have seen partnerships blow up, and the partners did not have any written agreement. It could get really ugly. Also, make sure you check with your state's or local governments to see if there are any other requirements for forming a partnership that you may not be aware off. Now, before we talk about how partners in a partnership pay themselves, you should know that a partnership can have both general and limited partners and depending upon what type of partner you are, determines how you get paid. So usually, general partners have broad rights and duties, while the limited partners off a partnership have restricted rights and duties. So for the purpose of this particular class, we're going to be focusing only on general partners now, just like a song proprietor. Ah, partner is not an employee off the partnership and therefore does not get paid a salary. Partners are not allowed to be on the businesses. Employees payroll. Now a partner can receive payments in any of three ways by a guarantee payment, distributive share off income from the profits off the business and by receiving a distribution that is over and above the partners basis in a distributed share, off income and guarantee payments both show up directly on the partners. Tax return distributions over and above the partners basis also show up on the partners Taxes tax return. No fighter taxes are deducted, no income taxes withheld and therefore partners must pay self employment tax. Okay, so back soon distributions over and above the partners bases. Now, distributions are only taxable. If the partners basis in the partnership is zero. If the basis is above zero, then the distribution is not taxable. If for some reason, for some reason it is taxable, it's usually taxed as a capital gains on the partners personal return. Now the term basis is used by partners of a partnership and also by S corporation owners. Now that concept is a little bit beyond the scope of this class, so I won't be going into into much detail. But just so that you know, a partners basis simply means how much he or she has invested in the business. Okay, so now let's define distributive, share off partnership income and guaranteed payments. A distributes of share off partnership income is a portion off. The partnerships profit from its operations, so growth income minus all of the partnership expenses equals net profit. The net profit is then divided up and paid out to the partners for in proportion to their partnership interest, meaning in proportion to how much they own. Guarantee payments are payments, but a partnership makes to an owner regardless of whether or not the business makes a profit. So even if the business loses money in any given year and therefore does not pay any profits to the other owners. The owners who received guarantee payments will still be compensated for their work. You could almost compare guaranteed payments to, let's say, all states to salaries paid to an employee of a business. Employees get paid regardless off how your business did that week or that month. That's the same concept with guaranteed payments. A partner who receives guarantee guarantee payments is paid regardless of how the business did that particular months or that particular week or that particular year. Now a partners distribute of share off income and guaranteed payments. Unlike a sole proprietors draw shows up directly on the partners Personal tax return. Now notice the term drawl and distributing share when referring to sole proprietors and partners in a partnership. The difference between a drawer and a distributed share is significant for tax reporting purposes. Okay, this is because a sole proprietor or a single member loc they could draw money out of their business, and the draw does not show up on the owners tax return. But a distributed share, on the other hand, shows up on the partners. Return now, all payments made to partners must be recorded using something called a schedule K one. Now a Schedule K one is part off the 10 65 partnership return. Now the partnership tax return shows all of the income and all of the expenses off a partnership for that particular year. Now the partnership itself does not pay tax on his income. Instead, the income flows through directly to the partners off the partnership. Each partner off the partnership receives a Schedule K one, which shows they're guaranteed payments and their distribute of share off the businesses, profits or loss, which then flows to their personal tax returns. Now let's look at a Schedule K one from the partnership return and a personal 10 40 tax return side by side so you can see how distributions the partnerships, income or losses and the partners guarantee payments flow through to the partners returns from the K one given to them by the partnership. Here we have a Schedule K one, and they form 10 40. The K one is the part of the partnership tax return that shows all of the income, losses, gains and other activities that affect each partner. Line one shows the income or loss from the partnership for that year. Each partners share of the income or loss is recorded here and ends up online. 17 off the 10 40 tax return line. Four shows income from guaranteed payments now. No, all partners receive guaranteed payments, but if they do, this is where it is recorded. Some partnerships don't get any of their partners guaranteed payments. Now. The guarantee payment also shows up on Line 17 Alter 10 40 and finally, distributions, as I said earlier, may or may not be taxable. It all depends on whether or not the partner has enough basis in the partnership. If the distribution is taxable, it shows up online 13 off the 10 40 it's taxed at the capital gains rate. In summary, a partner gets paid by a distributive share off the partnerships, income or loss and by guarantee payments. If applicable to that particular partner. The payments show up directly on the partners tax return so all the payments a partner receives, whether it be guaranteed payments or a distributor share off the partnership. Income shows up on the partners tax return. All general partners have to pay self employment tax on their guaranteed payments and on their distributive share off partnership income. Now, how is all of this recorded on the partnerships? Financial statements? Well, guarantee payments are recorded on the partnerships profit and Loss statement, while the distributive share of income and lost paid each partner is recorded on the business's balance sheets and paid into each partners capital account. Each partner of a partnership has his or her own capital account on the partnerships balance sheet. I hope all of this makes sense, and I hope you leave this lesson with a better understanding of how partners in a partnership get paid and I'll see you in the next lesson. 5. Lesson 4 Multi Member LLC: in this lesson, we're going to be going over the multi member L. L C. Form of business now once again, as I mentioned in an earlier lessen, the limited liability company formation is only recognized on the state level and not by the I. R. S. So a multiple member L. C is a term used for a business that has two or more members members meeting owners. There are no limits to the number of members, and Elsie can have now. One purpose for forming a multiple member LLC is to protect the personal assets off the owners LLC's limit the amount of liability that the owners are exposed to in the event of a lawsuit. In other words, you're protecting your personal assets from being part off any lawsuit. Now, remember, as I mentioned when I discussed the single member LoC, I'm not an attorney, so I strongly suggest that you speak with your returning about the legal benefits and the legal compliance requirements off, and l seem now just like a single member at L. C. In order for a business owned by two or more people to receive the protection of a limited liability company the business must be registered with the state, and the paperwork must also show the names off all the members in order for each member to have limited liability protection for federal perp for federal tax purposes, the ire s treats multiple member LLC's in the exact same way that it treats a partnership. Legally, however, your L. L C is not a partnership. It's only treated as a partnership for tax purposes Elsie's illegal business entities. So they are separate from the owners and they are created by state law. I arrest once again does not have a specific tax classification for LLC's. So instead, the IOS taxes the multi member LLC just like it would a partnership, since there's more than one owner off the LLC. So how do owners of multi member LLC's pay themselves well, just like a partnership. A multi member NLC has to file a 10 65 which is a partnership return, and they filed this this return with the ire s. Each member is once again issued a K one, which becomes part off the owner's personal 10 40 tax return so we can just cross out partnership under business type and substitutes it for multiple member LLC. Everything else stays exactly the same. For further details on how owners of a multi member and Elsie pay themselves, you can go back. You can go back on watch Lesson three on partnerships and will give you all of that information. Multi member LLC owners pay themselves once again in the exact same way as a partnership for tax purposes. A multi member L C can elect to be taxed of the corporation if a multi member LLC elects to be taxed as Inc. The owners of the business are no longer allowed to pay themselves the same way they would otherwise have paid themselves if they remained a partnership. The members will now have to pay themselves in the exact same manner as a C corporation owner or an s corporation owner, depending on the type of corporation they elect to be taxed as and we're going to be going over S and C Corporation entities in subsequent lessons. Okay, I hope all of this made sense on. I hope he leave this lesson with a better understanding off how multiple member LLC's pay themselves and I'll see you in the next lesson. 6. Lesson 5 S Corporation: in this lesson, we're going to go over the S corporation form of business. Now, there's so much information to share regarding s corporations, including their structure, the pros, the cons and the compliance requirements. But for the purpose of this course, we're only going to be discussing matters that are closely or somewhat related to how owners of an s corporation pay themselves. So in general, s corporations are regular corporations. In other words, an S corporation is a regular corporation, and in some cases they are LLC's and partnerships that elect to be taxed as an s corporation on by regular corporation, I mean a C corporation which we will be discussing in another lesson. Now, remember, LLC's and partnerships can elect to be taxed as an s corporation, which means they will have to follow the rules and the pay structure off an s corporation if they so choose to be taxed as such. Now, before I dive into the pay structure off the S corporation owner, I'd like to get some backgrounds off the escort structure. All corporations start out as your basic corporation, also known as a C corporation. Now, generally, corporations, whether it be C corporations or s corporations are governed under the law of the state that they are formed. But unlike LLC's that are also governs under the laws of the state that they are formed, corporations are recognized by the ire s as a taxable entity. Now that s corporation is a hybrid. It's a cross between a C corporation and a partnership. So what does that mean? Okay, an S corporation enjoys the limited liability status of a C corporation, which means a shareholders liability on by shareholder. I mean, the owner is limited to the amount he or she invests in the business. So in other words, a shareholder's personal assets are protected from a lawsuit. An S corporation also enjoys the past through structure off a partnership. So this means that the net income or the corporation is passed through to its shareholder owner and tax on their personal tax return. By allowing s corporations to pass their incomes through to its to its shareholder, the corporation is avoiding the dreaded double taxation that C corporations normally pain. How do owners of an s corporation pay themselves unlike a sole proprietorship an N l. C, or a partnership the owner of an s corporation, who also works in the business, is considered an employee off the business and therefore must get paid their salary or wages, just like all the other employees off the business. According to the IRS rules, a shareholder employees is required to pay themselves a reasonable salary. A reasonable salary can be defined as the amount you would expect to be paid doing the exact same job if you were an employee off another company. So what this means is, if your position pays an average of, let's, say, $85,000 in the marketplace, paying yourself $15,000 for that same position in your own company would not be considered a reasonable salary. Now. That being said, if your company's profits for that year was extremely low, you can get away with paying yourself less than market value as long as you do not pay yourself a large distribution. During that same year, a shareholder owner also receives a distributive share off the company's profits. It distributed share is not subject to self employment tax. Both the salary and the distributor's share of the profits show up on the shareholder tax return. Now if a shareholder takes any money out of the business that isn't paid to him or her through his regular paycheck or through a distributor's share off the company's profits that amounts also referred to as a shareholder distribution may or may not be taxable, depending on his or her basis in the company. Shareholder distributions are Onley taxable. If the shareholders basis in the corporation is Vero, if it is taxable, it is taxed as a capital gain on the shareholders. Personal tax return. Now, once again, the term basis is a term used for partners of a partnership or for an s corporation owner. Now the concepts, as I said in an earlier lesson, is beyond the scope of this class. So I'm not going to go into into much further detail as to what the bases means. But But, as I said earlier, just keep in mind that the basis generally means the amount of money that either at partner or a shareholder employee has invested in the business. Distributive share off income and salaries show up directly on the shareholder employees personal tax return. The distributive share is recorded on a form called the schedule K one just like that of a partnership. The K one is passed off the corporations tax return. All of the owners of the S corporation received a K one at the end of each year. Now the S corporation itself does not pay taxes on this income. Instead, the income flows through to the shareholders who then pay that tax on their personal returns. Any salary or wages that is paid to a shareholder employee is always recorded on a W two. Now let's look at a shareholders k one w two and their personal tax return side by side so we can see how the shareholders distributed share of income and the W two salary flows through from the Schedule K one and from the W two onto the shareholders. Personal tax return. Here we have a schedule K one a double YouTube on day form 10 40. The K one is the form given to the owner of a corporation showing all of the income, the losses, the gains and all other activities related to each shareholder. Now line one of the K one shows the income all the loss from the corporation for that particular year. Each shareholder's portion off the income or loss is recorded here on line one, and it flows to line 17 off the 10 40. Most people are familiar with the W two, since we have all been an employee at one time or another. This form shows how much the shareholder employee was paid during the year, and the income flows from the W tube onto Line seven off the tax return. And finally, if a shareholder receives any personal distribution, that distribution may or may not be taxable. Now. Personal distribution means any type of distribution that the shareholder employees received that was not paid to him or her by employees, wages or by the distributive share off the corporations net income for that year. Now, whether or not it is taxable, depends on whether the shareholder has any basis in the corporation. If the distribution is taxable, it shows up online 13 off the 10 40 it's taxed at the capital gains rates. In summary, a shareholder of An S corporation gets paid a salary as an employee off the business and a distributor's shares off the corporate profit or loss. A shareholder may also receive a personal distribution from the company. The salary distribute, the share of income and all other distributions show up directly on the shareholders. Personal tax return Fike ER, which is Medicaid and Social Security as well as income taxes, are withheld from the shareholders. W two income. No Fike er or income tax is withheld from the shareholders distributed share of corporate income. Nor does he or she have to pay self employment tax on that income. I hope all of this made sense. And I hope you leave this lesson with a better understanding of how s corporation owners pay themselves. I'll see you in the next lesson. 7. Lesson 6 C Corporation: in this lesson, we're going to go over the sea corporation form of business. Unlike a sole proprietorship, a partnership, a C corporation is separate from its owner. Therefore, it is treated as a legal person with rights and obligations. Corporations are not very popular among small business owners because of all the compliance requirements. Now, one of the major drawbacks of a sequel creation is the double taxation. A C corporation is taxed twice once on the corporate net profits and again when the same net profits are distributed to its owner. So what that means is a C corporation has his own personal tax return. So all of them income, any expenses are recorded on the tax return and whatever net profit the corporation receives, or rather wherever profit the corporation made that year is taxed. The author is taxed now. All you have left is the income after expenses and also off the income tax expenses. When that same income is then distributed out to the owner of the corporation, the owner has to then pay tax on that same dividends on their personal tax return. So that's what's meant by double taxation. Generally, corporations are governed under the law of the state that they are formed. But unlike LLC's that are also governed under the laws of the states that they were formed , see, corporations are recognized by the arrest as standalone taxable business entities. So how did how do owners off a C corporation pay themselves? Unlike a sole proprietorship and L. C or a partnership? The owner of a C Corporation who also works in the business is considered an employee off that business, and therefore they must pay themselves this salary or wages, just like all the other employees of the business. A corporation or a C corporation can also choose to pay out dividends to its shareholders or to its owners during the air. So therefore, an owner of a corporation can get paid through either payroll or by receiving dividends from the corporation. Now, the dividends that the owner receives is not subject to self employment tax. It is, however, subjects to income tax but not self employment tax. Both the salary and any dividends that is paid to the owner off a corporation both show up directly on the owners tax return. If a corporation pays out dividends to its owner. The amount paid if over $10 is recorded on a form called the 10 99 d I V. The only gets a copy and a second copy is then mailed out to the ire s making them aware that the owner has received taxable dividends from that corporation. So now the iris knows that the owner has income from the corporation in the form of dividends, and the I arrest will be looking for that particular income on the owners tax return. Any salary or wages paid to the owner is recorded on a form W two. Now let's look at a C corporation owners 10. 99 d I V a w two and their personal tax return side by side so you can see where the income he or she receives is recorded on his or her personal tax return. Here we have a W. Two and a 10 99 d I v 10 1990 ideas. The form given to the owner of the corporation showing all of the dividends paid out for that particular year. Dividend income is then recorded online. Nine a off the 10 40 so it flows from the dividend from the 10 1990 ivy on Sue from 99 a. Off the 10 14. Most people are familiar with a W two, since we all have been an employee at one time or another, this form shows how much the owner off the corporation was paid during the air, and the income shows up on 97 off the onus tax return. In summary, a shareholder owner off a C corporation gets paid a salary as an employee of the business on a dividends, if any dividends are paid out. In that particular year, Spyker, which is many K and Social Security as well as income taxes I was held from the shareholders W two income. Now, when I say shareholder, I'm talking about the owner. In this particular case, shareholders do not pay self employment tax on their dividends. All they pay is income tax on the dividends, no self employment tax. All payments made to shareholder owners that will be salary or dividends show up directly on their personal tax return. I hope all of this made sense, and I hope you lead this lesson with a better understanding of how C corporation owners pay themselves 8. The Assignment: thank you for taking the time out to watch my class. At this point, you should have a fairly good idea as a business owner, how you should be paying yourself, click on the project or the Assignment link and follow the instructions If you decide to change your business structure simply based on how you would like to get paid, or rather how you'd like to pay yourself. There is a very handy leaflet linked to the assignment that explains the pros and the cons of each entity type that we went over Good luck.