If you are the owner or director of a small business, you can use dividends to pay yourself a salary. You don’t need to pay taxes on the money you earn through dividends. This article focuses on how you can take dividends as a salary without incurring a tax bill. It also looks at the side effects and implications of taking dividends from the business.
How Much Dividend Can a Business Owner Pay Himself Tax-Free?
The good news is you can receive an unlimited amount of salary from a business that you own. There is no cap on the salary you can pay yourself from the business. In fact, many business owners take all the money from their business as salary and pay no taxes at all.
If you are the owner of a corporation, you will not pay income tax on the dividends you receive. The corporation receives the money as a corporate tax deduction. This means if you take all your money as dividends, you do not pay income tax. You do, however, still have to pay taxes on your dividend income.
Size of Dividend Payments
You should also consider how much you pay yourself in salary. If you take your entire salary as dividends, does it really make a difference to your wallet? You don’t want to cut yourself off from receiving your salary. The IRS will expect some sort of salary from you.
The payment from you to the corporation should be reasonable, and you could get into trouble if you take it all as salary. The IRS may view this as a tax evasion scheme.
You also need to consider tax withholding. Since you are taking money from your corporation, the company will withhold your income tax. You will not get a tax refund for the money that the company withholds; you will have to pay it all eventually.
Timing of Dividend Payments
You can pay yourself dividends at any point in the year. This means that you could pay yourself dividends all year long or only during the end of the year. The company can withhold the final amount for taxes when you file your income tax return.
You should consider how you want to pay yourself from your corporation. If you want to take a large payment during the year, you should take the dividends often to avoid too much tax withholding. You should use a payroll service if you have employees to take the money out of the corporation.
Get Support from Accounts and Legal
There are many ways to pay yourself as a business owner. When you are a business owner, it’s a good idea to get support from your finance and legal team. A financial professional can help you determine the best way to pay for yourself and your business. A business attorney can help you understand any tax implications of your business.
If you have any questions regarding dividend payments, you should contact an accountant or tax lawyer. They can advise you on your options. The IRS has specific rules regarding your salary.
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