Paying yourself as a small business owner can be tricky, but this important task deserves careful consideration. As an integral part of applying for small business loans and filing your taxes, you need to make sure that you’re getting compensated fairly and within industry standards.

Here are a few ways to determine your salary:

Start-Up Phase vs. In the Black

  • As a business in the start-up phase needs funds to grow, consider paying yourself just enough to get by. Then, when your business is in the black (aka making a profit), you can reevaluate your business’s projected annual growth and increase your salary accordingly.

According to Your Position or Title

  • Corporate officers may or may not be considered employees depending on whether or not they provide significant services. Officers need to define a reasonable compensation for their level of work.
  • Partners, on the other hand, are never considered employees and thus should not be issued a W-2.

As for how you should receive payment, that’s determined by how your business is incorporated. If your business is a limited liability company, you can simply take money from the company finances as an “owner’s draw”. Remember, this type of pay is subject to self-employment taxes at the individual tax filing level. Alternatively, you can give yourself an official salary. This, however, will require you to change your LLC’s tax classification.

Regardless of how you decide to pay yourself, you should study the average salaries in your field; the IRS requires that an LLC manager’s wage meets industry standards.

OnDeck is a Google Ventures-backed company with an A+ rating with the Better Business Bureau. The company offers small business loans nationwide to over 725 different industries. For more information about OnDeck small business loans, click here.

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