Originally posted by @Gary Alford:
Bill G. First off I'm sorry but you sound like someones angry uncle lecturing kids. Only fools make assumptions like you have and not really understand the question or the person asking it. I have read your profile and for you to have done as much as you have and been around this long I am really disappointed. I should not have to tell you with you being so much older than me to ask if you do not fully understand the question. Had you done so I would have explained that I am nowhere near financially illiterate (I feel no need to type my resume but this is not my first rodeo) and told you that like @Brandon Hall said I just wanted to see how people did it. I was interested in hearing peoples take on paying themselves if at all. When you look at the amount of money you can bring in even on a wholesale you have a lot of choices as to what you can do. I wasn't looking for a lesson just what you did? I'm pretty sure what you do is different than what someone else does. Some want to just roll it all back into properties and don't take any out for themselves. Then others in general business believe that you should never go with out paying yourself even if it's something minor. I was looking for the mindset of different investors on BP.
So please before you come posting if at all on my post (it is perfectly fine by me for you to keep scrolling) to go have a drink and not take your daily frustrations out on my thread. However, thanks anyway for the post.
Gary, in that case, please accept my apology, your question did not come across to me as asking methods as much as how can you, which then, as you know, you can't get blood out of a turnip, if it's not there, you don't get paid. So, to that, sorry for my miscommunication.
In that case, let's look at it from the angle of "use of cash" your cash flow and the best opportunities available to you.
We can't do that unless we know what the business is and how it's set up, you mentioned partners so that complicates things to some degree, your agreed split can be paid out as each desire.
As to draws, SS taxes are due on compensation received, you'll have estimated taxes as well, if your company provides you with living quarters the value of that is taxable income. There is no "drawing" or "advance" that escapes taxable effects on payroll. See your tax advisor.
If you want to avoid taking income, as I did in a few operations, look into golden parachute arrangements, but ultimately the tax man has his day from small operators (if you're not issuing stock as a C Corp).
I tried the company car bit, there were advantages but I only had one vehicle held in that manner, not a fleet, and insurance was high so, I kicked that idea.
Life and health insurance can be expensed, but it's still a taxable benefit.
I set up one company with graduated administrative charges that were deemed to be earned and charged at future dates, this was a non-profit so the retained earnings were not taxable. Earned income was retained. I could borrow advances, as a loan and the loan was offset by earnings that accrued. This is a little different than the draws mentioned above and the corporation was funded. All of this brain damage really only avoided quarterly tax issues as we settled up annually for the most part, but an IRA was also used.....which I'm pulling on now.
When I began and even after several years, I did my best to avoid paying SS self employment taxes, that was actually a mistake.
Don't want to get off topic, but disability insurance is high, if you can even get it, for those in construction activities, general RE as well. SS is actually a very good deal when you consider all the benefits as matching those in the private sector just wouldn't be affordable for most starting out. Disability is something most don't think of seriously, it's not just accident risks on a job, but also getting hit by a bus. If you get injured at 35, you could be collecting an annuity income for 50 years! I know the retirement side has changed, age to draw SS, I maxed out my contributions in later years for the max payment I get in my old age and I expect to collect it all. :)
In RE and related activities, an owner's drawing is the simplest way, just take out what you need when you need it, if it's there. Setting up a salary schedule means accounting steps that aren't necessary for an owner, the company incurs an increased liability daily to accounts payable, it can become significant with partners.
Another aspect of doing a salary, is that lenders may use the contracted salary level to qualify for loans rather than making their adjustment from owner's capital which could be higher. If you say that the company needs to retain X dollars for future operations, then the lender will accept that, so long as it's reasonable. Keep in mind too, that what you draw effects your borrowing abilities. Lenders like to see frugality more than extravagant life styles unless you can really afford it.
If you borrow money that includes operations, don't live off of borrowed funds, eat noodles before you do, it's poor cash management and if you hit periods without income (and everyone does in RE starting off) you'll be digging yourself in a hole.
When I was leaping tall buildings in a single bound, I took equity rather than pay with partners, in fact we all did. I was usually in the driver's seat and took a small admin fee to cover my expenses, say dinner meeting others or travel expenses.
Another, and last comment, when dealing with partners your pay should be common for the type of contributions you bring to the table and be on the conservative side. If you do the management of properties, then you shouldn't be charging more than 10%, in fact, IMO, 6% might be better. When you have other people's money involved you have a fiduciary duty to protect their money as well as the funds of the company, think of yourself as an independent contractor performing duties for a company you don't own. If things get thin, and they can regardless of how big you are, partners will first look to what you took or are taking and bad vibes will result quickly if you're dipping too much out of the well. Instead of looking at what you can pull out, look at it as an owner wanting a good deal from an outside contractor, like an accounting firm, for what you might do.
Amends! :)