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How To Pay Yourself When Self-Employed

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When you’re self-employed you probably want to get paid.

So you think you should pay yourself.

At least a little somethin’, amirite?

You are the business owner after all!

I mean, you do have bills to pay.

Unless you live with family or are taken care of I guess!

But let’s stay on point here lol.

How do most people take money out of their business for personal expenses?

By writing a check and taking it to your financial institution to deposit.

Or doing a mobile deposit.

Or simply transferring money whenever they need it.

Some people I have worked with have made transfers as many as 3-4 times a week.

That is a horrible way to pay yourself no matter how you look at it, but not uncommon.

Why?

Because, just like anything else, there is a right way and a wrong way to get money out of the business to take care of personal expenses.

And just to be clear, when I say “pay yourself” I’m using that to describe the act of taking money out of your business to use for personal purposes.

Pay yourself from your phone while lounging

The Problem With Taking Money From A Business

The money that comes into a business is meant to be used strictly for business purposes.

That means it can only be used for paying for:

  • supplies
  • business rent
  • running payroll
  • marketing costs
  • your business website & all its related costs
  • and anything directly related to the operation of the business.

That money is not to be used to pay for your:

If you work from home, you can take a reasonable portion of certain household expenses such as phone, power, cable television & internet, or auto-related outlays.

Sometimes, however, it is necessary to take money out of the business in order to cover some personal expenses…

A self-employed person taking money out of a cash register-the wrong way to pay yourself.
Simply taking money out of your business to pay for personal expenses anytime you need isn’t the best way to pay yourself

The Wrong Way To Pay Yourself

Lots of people who own small businesses don’t know how to properly handle the task of taking money out of the business.

Unfortunately, many also don’t feel like they need to work with a tax accountant because they can “Google what they need to know”.

They simply make payments for their personal expenses out of the business bank account or use the business credit card for those personal expenses.

Some even head over to the ATM machine and take cash out of the business for no other reason than to have some pocket cash.

None of those methods are even close to proper.

Another thing I’ve been hearing as of late is incorrect advice for sole proprietors and single-member limited liability company (SMLLC) members, or the partnership partners to sign up with a payroll service and take a salary.

While in theory that’s a sensible option and helps to alleviate the headaches of paying self-employment tax each quarter, it’s not permitted.

A sole proprietor can have employees but they cannot be employees.

If anyone recommends that you pay yourself by putting yourself on salary as either a partner (of a traditional partnership without S Corporation status) or a sole proprietor you should ignore them and seek advice elsewhere!

A woman at the bank teller window taking money from her business account instead of paying yourself
Going to the bank to withdraw money from the business account anytime you want isn’t the best way to get money for personal needs.

The Correct Way(s) To Pay Yourself

Let’s face it, starting a business wasn’t done just to put in work and get no reward.

You want to get paid for your time and effort.

If you need to access money for personal reasons, there are three acceptable methods for doing so:

  1. Putting yourself on salary and taking payroll checks (if an S-Corp)
  2. Writing a check to yourself in the form of a distribution (again, if an S-Corp)
  3. Schedule regular draws (if you’re a sole prop or Single-Member LLC) instead of random withdrawals

You should always create some sort of separation between business and personal expenses, and taking either of these steps does so without drawing any unnecessary attention to the transactions.

Setting yourself up with regular payments, even if they aren’t actual “salary” checks helps not only keep the business looking legit, but it also helps people budget better because it simulates a regular salary like before they took on the entrepreneurial venture.

It also creates a paper trail, which keeps you in a good position if/when it comes to…

Getting In Trouble By Not Paying Yourself Properly

How to pay yourself-Black man writing a check from his business account to mobile deposit into a personal bank account.
It’s so simple to set up a system to pay yourself the “right ways” that you won’t have to worry if you happen to get contacted by the IRS or state.

So what’s the worst thing that can happen if you don’t keep your business and personal money and expenses separate?

If you continue to treat your business as your personal piggy bank?

Bottom line is that if you are ever looked at for any reason by the IRS, a whole lot actually.

The first that that would happen is that you would have to undergo an audit, during which the burden would lie on your shoulders to prove that the expenses in question are valid business expenses.

It is your responsibility to show proof in the form of receipts or invoices that can support your claims.

If you cannot, then the fun really begins.

If you happen to be a C-Corporation, then the tax return would be recalculated with all of the expenses added back.

What makes this particularly troublesome is that C-Corps are taxed at higher rates than individuals.

Not only that but you will be assessed interest and penalties on the unpaid portion of the newly calculated tax liability.

If the business is a partnership or an S-Corporation, the expenses will still be added back to the tax return, but it gets a little dicier from there.

Since those business formats flow through to the personal income tax return, you not only have to have your individual return recalculated but the additional income may in fact cause you to be phased out from deductions and/or credits that were originally claimed.

Let’s also keep in mind that if you have a state income tax, your state return will be affected too.

From there, your new income tax liability will be computed and you will again be charged penalties and interest on the unpaid portion of this new figure.

Additionally, you will now be on the IRS’s radar and the chance for future review and audits will increase.

On top of that, if you needed to raid the business accounts to support your personal lifestyle, then you will be in even greater trouble once the interest and penalties start piling on.

“How Much Should I Pay Myself?”

Hundred dollar bills and the 31st on a calendar circled in purple marker with "Pay Day" written as a reminder to pay yourself.
One of the best ways to take money out of your small business is to set a schedule and pay yourself a set amount at regular times.

This is something I get asked regularly:

Hey Eric, I’m newly self-employed, can you tell me or help me to figure out how much I should pay myself?

Dozens of entrepreneurs

It’s not a bad question.

In fact, it’s a sign that they are thinking about things in the right way.

The answer, however, is difficult to come by.

It’s like most things in life, the answer is: it depends.

Everyone has a different circumstance and family situation to consider when coming up with a figure to pay yourself.

Another thing that factors into the equation is whether the business is profitable or not.

Obviously, if your business is losing money, you can’t pay yourself.

The best way I have found to answer the question of “how much should I pay myself” is to do this:

  • Come up with a personal monthly budget
  • Figure out how much in total you will need to pay yourself in order to meet the budget
  • Divide that number in half
  • Pay yourself one half on the 15th of the month
  • Pay yourself the 2nd half on the last day of the month

This essentially acts like a regular paycheck which makes it easier to maintain a budget.

If, however, you can’t pay yourself that amount in full, then simply pay what you can.

The point of this exercise is to make it so that you aren’t constantly dipping into your business money to pay for your personal expenses.

So now you know the answer to the question “How much should I pay myself?” should you be wondering?

Wrapping Up

Well, that’s the basics on how to pay yourself as a self-employed “boss”.

Granted, no one article can ever address everyone but this should help the majority of you.

Keep in mind 2 things:

  1. Nothing is written in stone–you can schedule it however and use any dollar figure you wish.
  2. These aren’t “rules” or “laws” just guides to help keep you out of potential trouble and make it easier to manage your business plus your money.

I urge you to adjust these guides to suit your own individual situation.

And one last thing:

A BUSINESS IS NOT YOUR PERSONAL PIGGY BANK!

Your Turn

How do you pay yourself as a self-employed person? Do you just take money out of the business account whenever you feel like it? Do you have a schedule? Do you leave the money in the business account and simply pay yourself whenever you want to bring that balance down?

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dean
dean
4 years ago

my employer literally hand writes COMPANY checks to pay mortgages, car payments (4 vehicles) home taxes, personal credit card, vacations, home repairs… etc. and also collects a weekly paycheck as well

Anonymous
Anonymous
4 years ago

Hi Eric,

I read the article about the business account not being a personal piggy bank. So does that mean a partner of an LLC SHOULDNT use the business credit card to pay for dinner out with his wife on Valentine’s Day and other special days, pay for hotel stays while on vacation, (but also worked during the week), car insurance when the company doesnt own the car, pay for a personal credit card, and pay for the kids cell phones? All of these charges go against his capital account. Is that right?

Anonymous
Anonymous
4 years ago

And it doesn’t matter what type of business you have set up correct LLC versus C Corp. versus S Corp. it doesn’t matter right? What about a partners capital account? Can’t they put The charges in their capital account?

Amber
Amber
2 years ago
Reply to  Eric J. Nisall

the capital account belong to the company, they are not to be used as a piggy bank either. The capital accounts represent your interest or capital in the company, but you have to follow the Operating Agreement or By-Law on whether loans to members or shareholders can be made.

Anonymous
Anonymous
4 years ago

Thank you very much for your replies that eases my mind tremendously! I’m glad there’s articles like this to help those that do not have a CPA or other finance degree and are just trying to handle the books for their employer the right way.

Anonymous
Anonymous
4 years ago

So I’m being told from my employer that using the business credit card and coding the charge to his capital account is the same as taking a distribution. So it’s ok to use the card this way. This is an LLC filing as a C-Corp.

Anon
Anon
3 years ago
Reply to  Eric J. Nisall

“…d coding the charge to his capital account is the same as taking a distribution. So it’s ok to use the card this way. This is an LLC filing as a C-Corp.”

Then there’s another issue…
How is the accountant or whoever do does the C-Corp’s returns handle the ‘distributions’, IF it’s handled at all? (Is it a dividend? Compensation?)

Mary Smith
Mary Smith
4 years ago

I have work for a company that is going to use the business line of credit $700,000.00 for a down payment on a house. Is that ok?

Mary Smith
Mary Smith
4 years ago
Reply to  Eric J. Nisall

It is a father son business. If they you the line of credit to help purchase the house and act as if it a business expense isn’t that wrong? And wouldn’t they need to show that as personal income.

Stephen
Stephen
4 years ago

Hi Eric. I have a complicated question.
My friend and I started a business over a year ago under an LLC that I am not attached to. When we opened the business account though, I was given 90% ownership of the account and titled “president”. Well, we’ve since had a falling out. Over a year later the business is still operating and I am still attached to the business account.
Legally speaking, Do I myself have any jurisdiction to the money? If I chose to close the account out as 90% owner, what legal trouble am I looking at?

Stacey Forsythe
Stacey Forsythe
4 years ago

What is considered a distribution? Is it a bonus? Can I write a check to us for the same amount every month in addition to the monthly salary?

Kelly
Kelly
3 years ago

can the owner of an LLC write a check to his wife from his business to be deposited into her personal account to cover the cost of their monthly mortgage? Then code is on the books as a building expense? Also change the name on the check in the register to read the name of the bank instead of her to make it look like a company expense. And she never claims it as income. is this even legal?

Lester
Lester
3 years ago

Hello Eric, just curious I have a C Corp if write myself a check from the business to help off set the cost of health insurance, and not use the cost as a business expense and pay any taxes owed . Is this ok, will there be any personal liability on my part for the distribution? Thanks

Mac @ financecareservices.com

As the famous adage goes that we must keep our personal and professional lives separated, the similar rule also applies to our finances too. The 5 reasons you have given are pretty strong and are sufficient to convince the entrepreneurs to follow it. Thanks for this post!

LisaB
LisaB
3 years ago

I have a small bookkeeping practice and I’m struggling with one of my clients. They run their entire lives through their business and while my “job” is to record the transactions as they are given to me, I am struggling and think I need to drop them. I even made their tax prep CPA aware of several situations that are incorrect and he made no adjustments before filing their business tax return. Do I have an liability if/when they get audited?

Dennis Jones
Dennis Jones
3 years ago

If I have an LLC and I have my wife as a partner, can I take money out to pay a personal expense by having my wife write me a check from this account? Is this legal as long as I don’t claim it as a business expense?

Manuel
Manuel
3 years ago

Hey Eric, so basically I bought a handgun with a c Corp card and it costs 500 dollars. Do you think I will be penalized with interest? If so how much would it be?

Angry in Anonymity
Angry in Anonymity
3 years ago

The company that I work for is owned by a husband and wife team that take a salary AND run their personal (gas, groceries, VERY expensive vacations) expenses through the company. I happen to know that they are struggling with cash for the business and are making budget cuts and planning to make even bigger cuts claiming the need is that sales have been low. Even though sales have been low, and cuts may be necessary, they have not changed their personal spending habits at all. In fact, they are planning an expensive ski vacation for their family in midst of these cut backs that are…yep…being funded by the company credit cards.

I know the easiest thing would be just to find another job. But it makes me so mad that they would dare talk about cutting back on people, and not their own shopping habits.

Casey
Casey
3 years ago

I’m a partner in an LLC, I have 25%, spouse has 25%, friend has 35% and the 4th has 15%. I operate the business on a daily basis. The 3 others are silent partners. Am I supposed to notify them if I write a distribution check to myself in addition to my automatic monthly distribution? What if I then wrote a personal check to cover that additional check?

Carlos
Carlos
3 years ago

I’m pulling 80k from my LLC as a down payment for my home where my new business head quarters will be located. Can that be written off?

Anonymous
Anonymous
3 years ago

I have a relative whose asked me to look at his books for him. He does not manage his business money well at all. Its an S Corp HVAC repair company which he does not pay himself taxable paychecks but rather continuous dividend distributions. He once had employees in previous years in which he did pay himself and payroll taxes (50% payroll and 50% dividends in a year) but is now on his own. On top of this, many personal expenses are on his business bank statements such as personal vehicle expenses, vacation expenses, many fast food transactions and so many other transactions that are not business related. The scary part is we’re just completing the 2017 year and he litetally paid himself NO true payroll checks with any payroll taxes paid, just weekly dividends in addition to the countless personal expenses.

If by some miracle he were to have a religious experience and realize the wrongs hes done, what are his best amd worst case scenarios?

Anonymous
Anonymous
3 years ago
Reply to  Eric J. Nisall

Thanks for your quick response. I truly appreciate it.

Mary Catlett
Mary Catlett
2 years ago
Reply to  Anonymous

Im in a similar sitiation. Owner uses bank card for a lot of personal eats, trips, vacations, home repairs, eat outs, knowing she cant make payroll the following week. She seems to not care anymore….im on the checking and don’t want to be….dont want to ne held liable. In my mind, she gas quit caring and so have i. I want out…..will i be implicated since i was paying the bills…..withwhat ever money i had a available and she wasnt spending?

Julie
Julie
3 years ago

Hi Anon,
I am getting my ducks in a row to open an online fabric store. I am getting my garage in order to store the inventory and shipping table and supplies. I plan on applying for a small business loan to purchase my inventory. As luck would have it, my garage ceiling (Sheetrock) collapsed. I received a quote to repair it ($2800). Can this unexpected expense be paid for using my business loan since this is the business space?

KENNETH H KAISER
KENNETH H KAISER
3 years ago

I’m a sole proprietor, no employees, licensed contractor that works freelance with no guaranteed income, my DBA is my name, my state contractors license is my name, and I have a business savings account and a personal checking account, no business credit card or checking account. I deposit checks made to the business (my name plus Electric) into the business savings account and then move the money as I need to my personal checking to pay for everything for business and personal. I don’t see any other way of doing things

Robert
Robert
3 years ago

My husband owns a company with a partner who manages it with a salary. The partner recently hired his wife to manage the financials from their home without consulting my husband. She isn’t a professional and we are upset and would like to know what you think. We do have access to the business checking account but she will be checking receipts to see if charges are legit. What do we need to do to make sure all is well.

Robert
Robert
3 years ago
Reply to  Eric J. Nisall

Thank you so much for your response and we completely agree.

We could use some advice on another issue… We bought in to the company 2 1/2 years ago when the company wasn’t doing well. Partner and wife then decided to go to two conventions both in exotic places. We know they didn’t do this before we bought in and want to know if we can make them pay us back for financing 1/2 of it. They did ask us to go and we politely declined mainly because the company was just getting back on its feet and we felt it irresponsible. OK I will be honest here, when I heard they were going a second time I completely lost it. Our company is doing better but not good enough for trips like that so if you could please let us know how to handle this we would appreciate it. They are not going on a third trip but partner said we couldn’t afford it, duh!!!

Wyn
Wyn
3 years ago

Quick history…4 shareholders of a S Corp, 10%, 10%, 10%, 70%. One of the 10% bought the 70% through personal note from owner of 70%. Refinanced house for down payment. Now there is 10%, 10%, and 80%. All shareholders have always taken a reasonable salary and then distributions from the profits and payed for business notes out of personal $. New owner now is saying distributions will come out after mortgage used for down payment and personal business note is paid. Is that legal for a majority shareholder to do in an S Corp?

Curious
Curious
3 years ago

What changes if this is a non-profit? (not 501-c3).

Frustrated
Frustrated
3 years ago

I went in 1/3 with my nephew to open a business. Found out my nephew has been using the business account to pay things like his mortgage, loans and groceries. He hasn’t given me my share of profit in three years. What can I do about the embezzlement? The business and bank account are under his name only.

jJB
jJB
3 years ago

I love the simplicity of this article and also Business is Not Your Personal Piggy Bank.
We are in the last legs of gathering evidence to prove our partner is in breach of his fiduciary responsibility, I’ve been reading everything I can from numerous websites and we are in the exact situation as you describe in these articles. Every thing you say can happen is happening by our partner to us. Hes the managing partner and If i was looking for an attorney, I would contact you. I cant wait for my husband to read your articles, when he wakes up. Hes very passive and I need him to put our partner on notice the next day or so that we want out non-contested end of our partnership. im going to read more thank you

Gail
3 years ago

I cannot emphasize enough how important it is to have a separate bank account. I’m a blogger/health coach and my tax professional filed a schedule C with my taxes and it triggered an IRS audit. Even though I had receipts for everything I claimed and the expenses were obviously business related (FB ads, Aweber, Leadpages, etc) my appeal was denied (I appealed 2x then gave up) and I had to pay the IRS 🙁 Now I’m having to get a DBA and business license in order to even open a business bank account and set things up in a more formal way.

Shakti
Shakti
3 years ago

I am a LLC – sole pro.
I use my business account to pay for everything.
mortage, supplies, electric, etc.

Are you suggesting I pay myself monthly from my business account into a personal account and pay from there? would i have to file two separate taxes at the end?

and if money goes into business account not earned by work do i have to add that into income. example transferring money from personal saving to pay taxes and into SEP.

thanks

Troy S.
Troy S.
3 years ago

Eric,
I’m the controller for an S Corp. with three owners. We have set-up a draw account for each owner and each take a normal monthly draw. Recently, one owner went to an attorney to have him write a letter to one of the other owners addressing the sale of shares of stock. What is the legitimately way of coding the attorney fee? Should I code it as a legal expense to the company or as part of the draw to the owner who retained the lawyer?

Willie
Willie
3 years ago

Hey I work at a place where we believe the owner is using our payroll account to pay for his lifestyle. When our paychecks come out once a week there isn’t enough money for us to cash or deposit them when we get them. We end up waiting for the account to replenish, while we wait on paying rent and bills.. is any of this illegal? Or just extremely unethical?

Alina
Alina
2 years ago
Reply to  Willie

If that happened to me, I’d start looking for another job. Not being paid on time for the work you provide is unacceptable and a valid explanation to tell an interviewer as to why you’re looking for a new job.

Very Frustrated
Very Frustrated
3 years ago

My husband is a 30% stockholder and his brother is 70% stockholder of a company. The brother uses the company credit cards for his personal use, approximately $50,000 per year. He pays for vacations, dinners, remodeling his house, his sons dental surgery ($2500) who lives out of state and the list goes on and on. The father past away last August and he also paid expenses from the credit card. Can his estate be taxed if IRS investigated the company? There are also monthly recurring payments from the company checkbook for paying an employee $1800 under the table, because he is on disability and can’t make over a certain amount. They also pay the sisters rent, car, insurance and cell phone, she does not work for the company. Long term care payments are also paid for the sister-in-law and now widowed step mother. I pay for my own LTC insurance. My husband did not know they had been paying the LTC for them. There is so much more, it would fill 2 pages. Another issue is, my brother-in-law takes commission on his sales at the end of each month before the customer pays its bill. They have outstanding invoices that amount to 60% that are unpaid, but he still pays himself the commission, which could be $4 – 8,000 per month. Now the company has to borrow money for operating expenses. After reading your post, none of the above is handled properly. Is a “shareholders derivative suit” the proper way to handle this situation? Any other suggestions are welcomed. We are in the state of Maryland if that matters. Thank you.

Al W
Al W
3 years ago

Hey Eric, wow! Sure is nice of you to respond and reply to all our questions! Sure appreciate the time spent! I read through the comments/questions/answers to the extent that I realized there’s too much to read to apply to what I inquire about so I did a word search on this page for “Sole Proprietor” and only found one. So, I have to ask the question:

Here is a scenario:
I have a small sole proprietor business, in operation for 5 years. I perform service work, have no employees, not hiring, and plan to keep it that way for now. I have 3 accounts at the same bank, 1 Business checking, 1 Personal Checking, 1 Personal Savings. I would like to move funds from my business checking into my personal savings/checking. Purpose: for personal expenses/purchases and accrue 5% interest.

The question I have for that situation is, will there be red flags that trigger audits, investigations, questions if money is being transferred from a business account to personal savings or checking account? For example, if a person transfers randomly, $5,000 one month, $15,000 next month, $1,000 this week, $1,500 next week, etc?

KM
KM
3 years ago

Hey Eric,

So I’ve been reading other posts trying to find the answer to my question but I don’t think I found one that helped specifically so I decided I’d ask you myself. I have an LLC that I use to manage a couple of rental properties. Currently I’m leasing them from a family member, meaning I make monthly payments to them (instead of a bank) but I receive the income the rentals provide. Am I allowed to:
1. Periodically write myself a personal check out of the company checking account?
2. Make my monthly payments to my family member with my business checking account?
What I have been doing is making the payments out of my personal account and then as mentioned in #1 writing myself a check to recoup those payments.

Harold
Harold
3 years ago

Hello Eric,
I have a S-Corp and I’m a 1099 consultant with no employee’s, the 1099 is listed in my name c/o my company name.
Here is where I’m struggling, Do I have the 1099 check deposited to my personal account or business account?, Currently all the funds are deposited in my business account. Also, I use my business bank payroll system to pay myself a paycheck twice a month, but at times I need funds to offset my personal lifestyle so I transfers funds from my business to my personal account when needed. Is this correct?

Option A
1099 –> business —>payroll –>direct deposit to personal–>
Option B
1099 –> personal—>business –>payroll –>direct deposit to personal–>

Thanks,

Harold

Harold
Harold
3 years ago
Reply to  Eric J. Nisall

Hi Eric, (update)
I’m the sole owner of a S-Corp with no employee’s just myself, I’m doing consulting /contract work with another company as a 1099 independent contractor, they would not do Corp to Corp. Is this correct.

Company A –> I’m contracted as a 1099 employee –> funds are deposited to my business acct–> run payroll –> direct deposit to personal account to pay me a salary.

Is this correct.

Thanks for your input you information is very valuable

Felipe
Felipe
3 years ago

Hi Eric

So as a only owner as a Corp, i receive my money for my jobs in the name of my company, than i pay myself writing a check every week for cover my personal expenses (rent, phone, groceries, internet, car payment) and the gas and tools for work I can pay with my business debit card.

And what abou distribution, every 03 months would be good?

I am asking you this because a see a lot of people pay everything in the name of the company, with a business account to pay less tax.

I do tile work, thanks for your help.

Brenda Hall
Brenda Hall
3 years ago

I have a S corporation and from time to time I have put in extra cash from my personal account to my business account and this year I wrote some checks to My son in his name, does he have to file these checks as income to him, since I wrote these checks from bussiness account. I know better now and have appointment with cpa at end of April.

Kenneth Verrette
3 years ago
Reply to  Eric J. Nisall

Eric, iam just starting my llc. as a consultant. I work as a consult for another consultant firm. When they pay me i would deposit the check into my business checking account. However if i need to pay personal bills. I should write myself a check to put in my personal account for personal bills. However in stead of writing a check each time. Can i just transfer money from my business to personal checking or do i need to write a actual check?

James Qualls
James Qualls
3 years ago

Hello –

My siblings and I are shareholders of a Sub S corporation and we all own 25% of the total shares. Seems like each year one or two of the shareholders comes up short at tax time and owes money. Often, we will take a “bonus” or extra distribution to cover personal income taxes at tax time. Is this ethical, right or legal?

Thank you!

Jim

K Moore
K Moore
3 years ago

I am a S corp sole proprietor. (no employees)
I pay myself on a w-2 and taxes withheld etc.
I have profits and am learning about taking a draw- Can you tell me if I take draws, do I pay personal taxes on that? Will it be added to my gross income (placing me in a higher tax bracket on taxes)

Kenny H
Kenny H
3 years ago

Hi Eric,

Wondering if you have any thoughts on this situation. Two partners, C-Corp, started in 2003. Had a falling out, lawsuit, etc. For all intents and purposes my partner was listed as 100% owner until 2017, when he was ordered to give me 100% of the company by Court Order.

Now I have to sign my name on the tax returns. Looking back at 10 years of bank statements, I see hundreds of transfers from business accounts directly to his brokerage account, casinos, ATM withdrawals, electronics, strip clubs, etc. Not small transactions either — all told, probably somewhere between $1mm – $2mm of personal expenses booked as business expenses. He destroyed most of the files before turning over assets in 2017, so there’s no written justification for these transactions.

Now that I know, I feel obligated to file a Form 3949A to the IRS to report the findings and draw a line in the sand. Every transaction after I took over is documented out of an abundance of caution, but I don’t want his past actions to come back and screw me.

Am I actually opening up myself to more trouble by reporting it? I would rather lose the company / assets than have his past actions blow back on me personally. Any thoughts?

Christine
Christine
3 years ago

Hi,

I am a bookkeeper for a small S corp business. I am constantly logging the owners personal expenses including rental cars, vacations, dinners, home goods, ect to the business. Can I get in trouble for doing this or does it fall soley on the owner of the business if there is an audit?

Bernadette
3 years ago

I have an LLC and I am giving myself a monthly salary, plus a year-end bonus. I need a vehicle now and can’t wait for the bonus time. Am I allowed to collect the bonus early to take care of that need?

Dan McCarthy
Dan McCarthy
3 years ago

We are a fairly new S-Corp with a profit last year of $50,000. There are two shareholders, myself & my partner each 50% ownership. If we were to take distribution checks this year, is the maximum amount $50,000 between the both of us? ($25,000 each).

Also, are profits of a S-corp taxed ?

Lauren Bishop
Lauren Bishop
3 years ago

Hi,
I’m the business operations coordinator/HR/AR/AP/whatever else they have me do. The owner of this company has direct debits for personal expenses (His health insurance, car payments, insurance). He also hand writes checks to pay for personal things, and also uses the company debit card for personal purchases for anything from dinner with his family to vacation purchases and a generator for his house.
I’ve gotten him to raise his salary, but he still does this. I’m responsible for keeping our books. (Using QB online).
He’s not going to stop this, so for the time being, how do I record these personal expenses in QB? I don’t know what category to put them in, or what to do about these.

SRD
SRD
3 years ago

I am a one-person S Corporation in the advertising/media planning & buying field. I live in and run the business out of my partner’s home, rent-free. My corporation is being audited by the state. My home office is my ONLY office and is used exclusively & regularly for my business. The auditor is not allowing any business-related/business supply deductions (this includes things such as an electric pencil sharpener, a desk lamp, Quicken Business software, a business laptop battery, a business cell phone charger, etc.), however, because I do not pay rent and do not have a written arrangement with my partner to this effect. He says I have no valid arguments because of this. He is also disallowing any deductions for internet or TV (both ordinary and necessary for my particular business and field) or client-required product research/online software purchases for this reason. He also says that these latter costs are not reasonable costs under the IRS Research & Experimental Costs definition since they are “advertising or promotions” (which is what my business does). This seems extremely strange to me. Am I crazy?

Anonymous Curiousity
Anonymous Curiousity
3 years ago

Hi Eric, the owner of an S-Corp with 20+ employees is on payroll with a high six-figure salary. In addition to that, they run about 50-60% of personal expenses through the business (clothing, vacations, groceries, home renovations, entertainment, cable bills and the list goes on), additionally they take personal distributions throughout the year, support a second and separate business at times through this company and have personal staff non-company related on the payroll. One of the top executives has a profit share agreement, what he has come to learn though based on the personal compensation of the owner is that the profits are being depleted through the years so technically he hasn’t received the actual % of profits as it’s been considerably lower by the time the end of year comes around. Is this illegal or considered misppropriation of funds in any way? Does this employee have a case or argument especially in light of the business struggling the last 2yrs, layoffs occurring and the owner continued in the same way? Any advice you can offer would be appreciated.

Sarah Murphy
Sarah Murphy
3 years ago

Hello, I have a question. I work for a very small company and my boss is the Director of Operations. The owner of the company is rarely here and doesn’t know anything about what’s going on, because my boss approves all expenses. My boss uses his personal credit card for both business and personal expenses. For example, a $5,000 trip to Alaska, flooring for his new home, blinds for his new home, granite countertops, ATV rentals while on vacation, clothes, groceries, I could go on and on….. How do I handle this situation? I don’t want to lose my job, but I also think the owner should know. It’s getting absurd.

New and Very Very confused
New and Very Very confused
3 years ago

I am a new business owner, and I have my company structured as an LLC and Scorp. I am 100% percent owner. My question is I was reading in your comments that you recommend doing owner distributions or owner draws and top of that paying a salary on payroll? Am i understanding this correctly? Can I just do Owner draws monthly or twice a month as my salary instead of being on payroll? On top of running this business i also have my full time job.

Gilbert
Gilbert
3 years ago

Hi,

I am a small business owner (LLC/S Corp) that operates the business from my home (one room turned to studio/office) and I pay myself through payroll system (I get taxed each payperiod). Currently, I am using money from my business to pay for supplies/marketing/business travel,etc. however I wondered what else could I use money from the business for? I’m wondering about things like internet, phone, partial mortgage, etc..I’m based in California (if that matters).

Thank you in advance!

Pat
Pat
3 years ago

I work for a boss who has a few companies. We have one big company that pays for products. She has a tendency to take payments from client A through Company 1 and pay off her personnel loans and business loans which she is then booking against Company 2 which has another investor. She also takes money from client B and uses 80% of to pay off the work that was then suppose to be done for client A and more of her personal expenses. Falling behind on payments for client B’s projects. These are all different companies she is moving the money through.
Client A is paying for projects to be done annually and she has now drawdown for projects that aren’t starting for months but she has spent 50% of the funds need to complete the later work. What little books there are seem to be co-mingled and it appears that she is double claiming things in taxes.

She thinks all this is fine. Is it? or are there laws being broken here?

sade
sade
3 years ago

hi my husband wants to add me to his business bank account but I am not a partner nor do I work for him is this advisable for tax purposes