The owner's
paychecks will be re-classed to equity draws. His revised salary will be about $50k. The tax liability will decrease by $7k.===>>>>>>>> a sole proprietor can draw funds from a business checking account to pay himself a salary..
he Reclass officer salary to equity draws? ====>>>>>>>.No big deal whatever it is called;unless the biz form is an S ?corp or an C ?corp, for a sole proprietor, there is no distinction between the business and the sole owner running it. As such, moving money from the business? checking account to his own personal checking/ savings account will have no tax effect whatsoever.
Unlike a SP, Other forms of business ownership have more strict rules as to how the owner can extract profitsFor a closely held corporation , even a single or few shareholders/owners working in the business must be paid a salary by the corp. As an owner, he can set a salary based on the what a comparable salary would be for the job he is doing and the projected profits of the business. The tax rules require working shareholders /owners to be paid a salary so that FICA taxes are paid for the owner. Paying himself a salary is one way to draw money out of his S- or C- corporation.large corps sometimes make low-cost loans to corporate oowners/fficers. Although you can have your corp loan you money, the IRS takes a very close look at these types of arrangements and the requirements and restrictions on loans to owners that make this option a not very attractive way to draw money from your company. so i guess a shareholder/owner of an S o rC corp can take money out of the corpas a salary, loan, reimbursement, advance against profits or repayment of a capital contribution. but the way the withdrawal is classified determines the tax consequences of the distribution. so he needs to classify the type of withdrawal he wants to take from the corp, if wants the money in exchange for ongoing services rendered, the money should be classified as salary. he can also borrow money from the corp as a loan. In some instances, he may want to take money out of the corpto reimburse himself for an expense he incurred on behalf of the company. Corps pay out profits to shareholders in the form of dividends, and the board can approve a dividend payout at any time. hecan also take money out of the corp by selling back some ofhis shares or decreasing the value of his shares by taking back some of his capital contribution |