Confused about how you can pay yourself out of your interior design business? #interiordesignbusiness #cktradesecrets #interiordesignceo #capellakincheloe

How to pay yourself in an interior design business? How much? How often? From what accounts?

When you’re hired as an employee, you don’t have to worry about getting paid, paying withholding taxes, or when you’ll get your paycheck. But as a self-employed business owner, these are all considerations.

How you pay yourself in an interior design business will depend on your business structure. For example, if your business is structured as a corporation you’ll need to pay yourself a reasonable salary as required by the IRS.

What I’m going to talk about today is how to pay yourself if you have an LLC. So, just to be clear, all the information below pertains to an LLC and I’m not a finance professional - it’s always a good idea to talk to a professional for advice with your business they know way more than me on this subject.

Pay Yourself - Draw

Many business owners don’t take a regular salary. Usually what people do is what is called a “draw”. A draw is when a business owner withdraws money or other assets from a business for personal use.

When you have an LLC you pay taxes pretty much the same as a sole proprietor - any business income or expenses are recorded and you pay taxes on all that you earn - whether you take some as a draw or not. If your business is profitable you’ll likely be required to pay quarterly self-employment taxes. This is where you should talk to your CPA about getting you set up.

So essentially, if you’re paying yourself from a draw, you’ll take money out as you need it. This could be sporadically, $100 here, $1200 the next week, maybe $45 the next day OR it could be a regular draw where you pay yourself every month or two weeks a set amount (this could be a fixed amount like $2000 or it could be a percentage of what you brought in for that period).

I’m going to say and your accountant would likely agree with me (always check!) that the second is probably a better business choice - for a lot of reasons, but mainly because you don’t want to intermingle funds - business and personal - because it could lessen the protection that the LLC provides (google: piercing the corporate veil).

So, when you draw money out of your business accounts for personal reasons/expenses that is paying yourself, but you will pay taxes at another time - either in quarterly estimated tax payments or when you file your tax return in April.

Pay Yourself - Salary

The other option is to pay yourself a salary. When you pay yourself a salary you can also set up payroll so that your self-employment taxes are withheld as if you were an employee. This helps spread out your tax liability rather than in 4 lump sums (as in quarterly estimated tax payments).

If you are paying yourself a salary you’ll need to pay yourself a set amount on a set schedule. You’ll need to submit payroll and pay taxes with each pay period, even if you’re the only one on the payroll.

How to Pay Yourself

It’s always a good idea to get in the habit of paying yourself regularly. If your income is extremely variable you may want to choose to pay yourself a percentage of what you bring in. Otherwise, you could choose a salary or standard draw with fixed payments. As your business grows so should the amount you pay yourself.

Rainy Day Fund

Don’t forget that when you pay yourself you should also be contributing to a savings account and/or retirement. In other words, don’t spend all your money - make sure that you’re putting some away for your future and leaner times.

Learn more about how to create a solid financial foundation during Peak Financial Week.