Hello again todd,
Thank you for the clarification.
Whether you pay yourself a wage throughout the year or not, you will still end up owing the exact same amount of taxes overall for the year. Paying yourself a wage does not make your tax rate change, nor does it change the amount of your taxable income
As a sole proprietor it would not make any sense from a paperwork standpoint to pay yourself a wage, as all of your earnings are solely yours and reported on your tax return at the end of the year. If you start issuing yourself a formal paycheck, then you need to deduct your taxes (federal income tax
, state income tax, SS and Medicare
taxes) from each check. You then need to remit those taxes to the IRS by filing 941 employment tax returns
I can only assume that what your friend meant was that by paying yourself a wage throughout the year, since you would be deducting taxes from those checks then you would not owe as much at the end of the year. But the same thing can be accomplished by simply making estimated tax payments
to the IRS each quarter. There is no need or reason to issue yourself a formal paycheck.
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Thank you todd and let me know if you have more questions.