Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax

How to pay yourself sole proprietorship?

Customer Question
I am a sole proprietor...

I am a sole proprietor. Do I "pay myself" a salary, or just settle for the year end profit/loss? If I do pay myself, where would I deduct it (which form). If my business shows a loss how would this change things?

Submitted: 9 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 5 hours by:
1/21/2009
Tax Professional: Ed Johnson, Tax Preparer replied 9 years ago
Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10,760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Verified

Thank you for your question.

As a sole proprietor or single owner LLC, you do not pay yourself a salary. The IRS says you must take a draw to pay yourself.

This means, whether or not you take the draw you report all earnings and expenses related to the business on schedule C, and pay taxes on the net profits. Your draw is, in essence, a draw on earnings. Self Employed and sole proprietors pay taxes on their net business profits, and pay SS and MC through Self Employment Tax.

You would use the following forms:

Schedule C: http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Schedule SE: http://www.irs.gov/pub/irs-pdf/f1040sse.pdf

If your business shows a loss you will not pay that much tax. You may have a net operating loss to carry forward to the next year, or even to carry back to the past 2 years or first day you were in operation if less than two years.

Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10,760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Verified
Ed Johnson and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask Ed Johnson Your Own Question
Ed Johnson
Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10,760
10,760 Satisfied Customers
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee

Ed Johnson is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,338 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,980 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
As a sole proprietor, can I change my accounting method of
As a sole proprietor, can I change my accounting method of reporting travel expenses from mileage to actual? In previous years , I have used mileage but this year I have a lot of actual expenses to my… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Changing being taxed as an LLC sole proprietor to an LLC
changing being taxed as an LLC sole proprietor to an LLC taxed as an S-corp, do they need to file Form 8832 or Form 2553 or both?If both, in what order?THANKS… read more
abci168
abci168
Principal
27 satisfied customers
I changed the structure of my sole proprietor business to a
I changed the structure of my sole proprietor business to a single member LLC mid year. Do I need to give my independent contractors 2 different 1099's? … read more
Richard
Richard
Tax Attorney
Doctoral Degree
4,338 satisfied customers
Under the new Tax Cuts and Jobs Act, does a Schedule C sole
Under the new Tax Cuts and Jobs Act, does a Schedule C sole proprietor qualify for the 20% deduction of qualified business income or is this only available to S Corp shareholders & LLC's?… read more
Patrick Mullis
Patrick Mullis
Masters
18 satisfied customers
I file taxes as a sole proprietor (as a single member LLC,
I file taxes as a sole proprietor (as a single member LLC, cash basis) - I would like to pay my son to help me with the business. The LLC has no employees by design so my son (under 18) would be an ou… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,084 satisfied customers
I am a sole proprietor operating an LLC in Wyoming providing
Hello, I am a sole proprietor operating an LLC in Wyoming providing business to business services and supplies related to lighting maintenance. I have a customer that is insisting that I supply inform… read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
With the new tax laws, if I'm a sole proprietor, would it
With the new tax laws, if I'm a sole proprietor, would it make sense for me to become an LLC? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I file taxes as a sole proprietor (as a single member LLC,
I file taxes as a sole proprietor (as a single member LLC, cash basis). I need to know if I can deduct the finance expense tied to a line of credit for my LLC from income. I generally understand that … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
If you are a sole proprietor llc and contributing to a SEP
If you are a sole proprietor llc and contributing to a SEP should it be contributed from a personal account or business account? I would think personal since on your tax return it is deducted on the 1… read more
abci168
abci168
Principal
27 satisfied customers
On a schedule c who do you put as the proprietor if it is a
on a schedule c who do you put as the proprietor if it is a newspaper route and you are given a 1099-misc … read more
James Daloisio
James Daloisio
Attorney
Doctoral Degree
85 satisfied customers
I wanted to form a sole proprietor business using my name,
i wanted to form a sole proprietor business using my name, and wound up using my name as a company name, is there a way to reverse this and do it the right way … read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
I am a sole proprietor with no employees. I am not an LL C
I am a sole proprietor with no employees. I am not an LL C or corporation. Can I issue a 1099 to a sub contractor without affecting my status a a sole proprietor? … read more
abci168
abci168
Principal
27 satisfied customers
If I am a sole proprietor that starts a business using
If I am a sole proprietor that starts a business using personal equipment assets in my business. Are there any ways to establish those assets as depreciable assets and take the maximum allowable write… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,084 satisfied customers
I have a client that was a Sole Proprietor. He formed an LLC
I have a client that was a Sole Proprietor. He formed an LLC and elected to be taxed as an S-corp on 8/1/17. He purchased a $39k vehicle in his sole proprietorship in 2015 and deducted Sec 179 and A/D… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
If an owner took a draw from the business (sole proprietor
If an owner took a draw from the business (sole proprietor llc) and the business is showing a loss excluding that draw then I assume no income or self employment taxes will be paid since there is a lo… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,808 satisfied customers
A sole proprietor with a tentative loss may deduct which of
a sole proprietor with a tentative loss may deduct which of the following for qualified business-use-of-home expenses:mortgage interest depreciation rent utilities… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,282 satisfied customers
A taxpayer, Form 1040 Schedule C, is on the cash basis. The
A taxpayer, Form 1040 Schedule C, is on the cash basis. The average revenue for the last 5 years is $5,100,000. There is no inventory. The NAICS is 423600Can he remain on the cash basis?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
If a sole proprietor loans money to his schedule C does the
If a sole proprietor loans money to his schedule C does the loan increase his basis in the business and when the business is closed, can the unrepaid loans be taken as a loss ?… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,282 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x