Can we talk about how I tried to save on taxes by paying myself a tiny salary from my LLC?

I paid myself $500 a month for a year thinking it would lower my tax bill, but my CPA in Tampa just told me it actually created a bigger self-employment tax burden and I should have just taken owner's draws.

4 comments

4 Comments

susan_allen1mo agoTop Commenter

Wait, you only paid yourself $500 a month?

gray3141mo ago

Yeah, $500 a month felt like a victory lap after the bills got paid. I was living on ramen and optimism, convinced I was building equity. Then tax season hit like a truck, just like Sullivan.Quinn said. I owed more than I made, all because I didn't understand the difference between a salary and a draw. My accountant just sighed and showed me the line for self-employment tax.

sullivan.quinn1mo ago

Yeah, did the same thing my first year. Got killed on taxes.

fisher.jessica1mo ago

My buddy's accountant said the same thing about his LLC. The salary triggers payroll taxes you could avoid with draws. It's a common mistake for new business owners.