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This is one of the most frequently asked question that we receive from small business owners. After all, getting paid is important whether you are an entrepreneur or 9-5 employee. The answer depends largely on how your business is structured.

If you are an unincorporated business things are pretty straightforward. You pay tax on the profits of your business, regardless of whether or not you actually withdraw it from your bank account or not. If you are the sole shareholder of an incorporated business, you still pay tax on the earnings of your business. However, the big difference is that the business generally pays you a salary for your services. This means that payroll taxes (and tax returns) must be filed for your business.

 

What happens if your business is set up as a LLC?

LLC’s are a legal structure that the IRS does not recognize as an entity separate from its owner. However, the owner of a LLC may choose to have the IRS tax his or her business as a corporation.

There are instances where being an S-Corporation can save you taxes and there are other times when running your operation as an LLC is the better choice. Speak with a tax professional to see which business structure is in your best interests.