Not taking pay

[gaseousclay]

Have any of you foregone salaries when you started your business? If so, what were the tax ramifications? My assumption is that a lot of entrepreneurs go without pay so they can put whatever profits back into the company. Good or bad idea ?

[TAAccounting]

Gasousclay,

That is correct, many entrepreneurs will forfeit pay either because they want to reinvest it into the company or because the tax filing do not allow them to be on payroll (LLC Sole-Proprietor status).

The only tax ramification that exists is that you pay self-employment taxes on your net income. This comes in at 15.3% Federal and usually around 6% state.

I would say it is a good idea when you starting your business -- that money should be spent in growing your company. Also, the only reason to go on payroll is to do away with self-employment taxes and switch to distribution at your normal tax bracket (ordinary rate).

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