Paying yourself as a business owner involves categorizing the compensation you receive from your business for the work you perform. The categorization of paying yourself depends on your business structure and how you receive your compensation.

Here are common ways to categorize paying yourself:

• Salary: If your business is structured as a corporation (including S corporations), you can pay yourself regular compensation as an employee. You receive this fixed amount consistently, similar to how other employees are paid. Paying yourself a salary is subject to payroll taxes, and you’ll receive a W-2 form at the end of the year.
• Owner’s Draw: If your business is a sole proprietorship, partnership, or single-member LLC, you can take money out of the business profits for personal use. This is called an owner’s draw or distribution. Owner’s draws are not subject to payroll taxes; you must report them as part of your income on your tax return.
• Dividends: If your business is structured as a corporation and you are a shareholder, you may receive dividends. Dividends are distributions of the company’s profits to shareholders. The amount you receive is proportional to your ownership percentage. Dividends are typically reported on your tax return.
• Profit Distribution: In some business structures, such as partnerships and multi-member LLCs, the owners distribute profits based on their ownership percentage. This is common in businesses with multiple partners or members.
• Reinvestment: Instead of taking money out of the business, you may reinvest the profits back into the company for growth and expansion. Reinvesting profits can help the business’s long-term sustainability.

Categorize paying yourself correctly for tax purposes and compliance with relevant regulations. Consulting with an accountant or tax professional can help you understand the best approach for paying yourself based on your business structure and financial goals. They can guide you to the most tax-efficient methods and ensure you comply with legal requirements while maximizing your economic well-being.