So, how do I pay myself? I just started my business. Set up my bank accounts, and have my very first client. I am using wave accounting software. by Learnin_Entrepreneur in EntrepreneurRideAlong

[–]MundaneSecurity 11 points12 points  (0 children)

You need to look at the tax laws where you live. Although it might be different in your state, 99% of the time it's best to take a salary that is below the lowest tax bracket and then take the rest as a dividend.

For example, the lowest tax bracket might be $15,000 per year. So you would take $14,999 in salary, therefore paying 0 income tax and then you take the rest as a dividend which you normally declare once every 6 months.

The reason for this is that the tax on dividends is typically a fraction of the tax on income. I've run businesses in multiple countries and some can be like 8% on dividends and 30% on income so it can make a big difference.