How do you pay yourself?

Question

I get a lot of different nonanswers with this question. Mainly, "Speak with a financial advisor." Well, I'm just curious how people pay themselves, I don't think I need to pay someone $300 an hour for that advice, do I? Say I profit $50,000 from a flip and put 30% of that aside for taxes. That leaves me with $35,000. My thought is to keep half of that in the business and reinvest and pay myself the other half. What do you folks do?

Jules Aton · Answer

Consider making a financial plan which you can do on your own and will guide asset allocation.

Ashish Acharya · Answer

You don’t need to pay someone $300 an hour for this! After setting aside 30% for taxes, it’s up to you how you split the remaining $35,000. Keeping half in the business ($17,500) to reinvest is smart. Then, you can pay yourself the other half. If you’re an LLC, take a draw; if you’re an S-Corp, you’d take a salary and then distributions from the rest.

Good luck, and happy to connect if you have more questions!

Ned Carey · Answer

@Brian Danielson it depends on your goals and current finances. Personally I would take as little as possible to meet my needs and invest the rest.

However there are tax considerations. You used a flip as an example but is that all your real estate income? Do you have rental income? Do you have  income from other sources? all of these are important questions. The answers can lead to how to structure your business entity for best tax planning.

An S Corporation or an LLC taxed as an S corporation may help you save on some social security tax as an example. However owning rentals in a C Corp or S Corp. is generally not the best for tax considerations.

There are so many variable that is why people say to consult a professional.

James Derry · Answer

My goal is to cover what I need.  I track my costs and try keep to my budget as much as possible.  Right now I am working towards growth and reinvesting as much as I can.