If you’re working for yourself, do you still need to write yourself a paycheck?

Businessman buried in paperwork

Too much paperwork

So you’ve finally started your own business. You’ve put up a sign, or maybe created a internet site. On top of that, you’ve actually found customers! Cash is starting to show up. Sure, probably not a tremendous amount, but some money beats no moneyat all, right?

What most of people will be thinking of right now is how to continue to build their business. Once you start the income trickle, how do you turn it into a torrent? But that’s not the only thing that should be on your mind.

Yep, I’m talking about taxation, and forms, and planning, and all those other things that are required to keep a business running smoothly. If you’ve finally found the golden goose, you’re probably not thinking much right now about selecting an accountant. After all, just how much paperwork is really required, anyway? For instance, do the small self-employed business ownershave to write themselves paychecks? 

Just like the rest of these paperwork questions, the devil is in the details. First, as expected, you need to pay your business costs out of the money you’ve made. Once that’s dealt with, generally, the remaining is profit. And if it’s profit, it’s income to you. So yes, you should generate yourself a paycheck out ofthat profit.

However you don’t always have to do it that way. Many self-employed people pay themselves a bonus from time-to-time, perhaps as a reward for landing a new account. You may also decide that some sort of work-related (but also fun) travel might be required. As owner of the organization, you have a primary responsibility to tend to the business, and things like seminars or perks can be a great way to keep yourself inspiredand things progressing.\

The IRS takes a dim view to too much of this, however, so your best choice is to use some kind of online system for creating your paycheck stub. (It used to be you should find a local bookkeeper, but almost all of those services are being managed on the internet anymore)

The secret for many business owners is determining just when to pay themselves. If you have a cyclical business, where you might make plenty of money one month and not really much the next, a good thing to do is probably hang on to your profits until the next month so that you can take care of your business bills first before writing yourself a paycheck. Of course, this is a lot easier said than done, and quite a few businesses have very inconsistent income streams that make planning for things like payroll very difficult. Once again, an online system lets you select how you want to do it, whereas if you contract out with a nearby accountant they’re going to want some sort of consistentplan of service.

It’s not at all something you can ignore, as taxes and penalties rise quickly and you could end up going out of business because the authorities takes everything youhave. 

Whatever you do, grow your business first. As the old saying goes, you can fix a lot of problems with more sales. Target building the machine that is your business, but additionally keep a very watchful eye on all the paperwork demands as well, because they can come and bite you in the rear if you aren’t very careful.