Paying Yourself a Salary
In my last post, an anonymous user advised that I should put all of my income into a business account and pay myself a set salary out of that account. While that is not a terrible idea, I believe it is not the best approach in my situation. Mr. or Ms. anonymous, I would like more information on why you feel this is a good idea, based on the following information. And for the rest of you, I'd love to hear your opinion in a comment about if this concept would make any sense.
If all goes as planned this year (which, chances are it won't)...
1. I can earn up to $120k net for the year in a W2, hourly position.
2. I can earn up to $40k in 1099 freelance income if my side projects remain consistent throughout the year. I'm thinking it will more likely be $6k.
3. I may earn much less than this on either or both areas of my income streams.
The concept of putting all of my earnings into a business account and then paying myself a salary makes sense only if all my income were 1099. But there is no benefit to setting up an LLC and a business account for my business income if my major source of income is now W2.
Thus, instead, I'll be looking for ways to shelter as much of my income from taxes as possible. That means in a way I will pay myself a set salary for "spending money" and the rest will be put places that I can't touch now or for a while, unless absolutely necessary.
Do you think this is the right way to go about this?
2 comments:
I'm no expert! But I have a hunch you are right. My parents run their own business full time and never have paid themselves a salary, although they've contemplated it several times. I can't remember the exact reasons anymore unfortunately, but the thing that sticks with me is that it was never worth it for them. And it seems like, in your case, you're going to be earning mostly salary anyway. . .
Do you have an accountant or someone who checks over your taxes? We have a CPA do ours since we've have a complicated international marriage/income situation for the last few years. I've turned to them for ideas about the next year's taxes in the past . . .
I don't have an accountant but funny you mention that because in my other window I am searching for one right now! I haven't gone the CPA route before because my taxes were fairly straight forward (even with all the 1099 income) but this year things are getting a lot more wacky and I'm clueless. I'm looking for a CPA to meet with for 2010 taxes to come up with a tax strategy because I need some professional advice right about now, and I've gotten to the point where I'm willing to pay for it.
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