Here are three things to consider when setting your salary:
First, it needs to be reasonable. The IRS expects you to pay yourself a reasonable salary for the work you do in your business. A good rule of thumb is to ask yourself: What would I pay someone else to do the work I’m currently doing?
Second, look at your salary as a percent of the total you take out of the business. There’s no hard-and-fast rule here. But we’ve found that if you take 50% as salary, the IRS will probably be OK with that.
Third, consider the QBID. Remember, the amount you pay yourself in salary affects the amount of your qualified business income deduction. If you’re eligible for the QBI deduction, you can deduct up to 20 percent of your qualified business income… but any income you earn providing services as an employee isn’t included in that.
It’s a great deduction that is available whether you itemize or take the standard deduction. You also can deduct up to 20 percent of any qualified real estate investment trust dividends and qualified publicly traded partnerships.
Is it time to give yourself a raise?
It could be. Consider the guidelines we’ve shared and then connect with your CPA.
As an entrepreneur, one of the best things you can do to keep more money in your pocket is to work with a CPA who specializes in guiding clients through a wealth and tax strategy. The concepts are simple, but the execution is critical.
Is it time to upgrade your wealth and tax strategy?
Tom and his team would love to help!
Schedule a call with the team at TFW Advisors® to learn more about how you can make way more money and pay way less tax!