Paying Yourself a Salary From Your C Corporation

Hello, everyone and welcome to another episode of coffee with carl. I am your host carl Zellner, one of the senior attorneys here with busing with Anderson, business advisors, and i mentioned i would talk about when it makes sense to take a salary from a c corporation. There are some circumstances in which i would suggest taking a salary from a c corporation.

However, you’ll want to meet with an advisor to make sure you’re, it’s the appropriate time for you to do it or that there’s no other way to accomplish your goal as if, as in, if your corporation is already profitable, and then you want to take a salary Out of it is, subject or could be subject to double taxation. However, let’s talk a little bit about some of the implications of taking a salary and how it actually works when it’s from your own corporation.

So, what’s nice is, if is, if you’re, going to take a salary from your c corporation, got to remember it’s going to be a deduction to your corporation when they pay the salary and then you’ll accept it and you’ll pay your individual tax limits as well as Your self-employment tax on the salary, the scenario I’m thinking of that i think, makes the most sense or when it’s suggested, is, if you’re trying to be more lendable and you’re trying to qualify for a loan and you’ve talked to your lender. And your lenders told you what criteria you need to meet to make the la the loan possible or the loan go as smooth as possible, and that would require you actually showing more w2 income.

Now, there’s a difference between a can in one of my previous videos. I discussed that the loan process is usually easier if you’re paying yourself a w-2 out of your c-corporation than your s-corporation, because normally the lender will just see the w-2 and not dive into your business. Through an s corporation, they may see a reasonable salary coming out of that s corporation, but you may run into issues when they see the k1, because then they’ll want to dive into your business and check the overall health of your business as well, and a lot Of times, if you’re just getting started, your business may not look that appealing to a lender, and so we can control sort of what the lender sees in this regard.

But to me, when I’m talking about paying myself a salary out of my c corporation, it would be most advisable when I’m trying to fit into that box. The lenders painted the scenario goes. Something like this is okay. Well, my lender told me: i need to be making more in w-2 income to qualify for this loan. This otherwise I’ll be looking at another loan. That’ll be charging, maybe a higher rate of interest or won’t be funded as or it won’t be quite as hefty as the loan I’m looking for. So, in this regard, i would run the numbers meaning i would calculate what I’d be paying taxes on my salary.

For that time to qualify for the loan and then i would be looking at well, okay, so what’s the cost of the financing or the cost of the money I’m getting from another lender, and then i would justify it, meaning if I’m paying. Maybe i will pay or i would pay some additional tax on showing some salary, but if I’m getting a larger loan at a cheaper interest rate, maybe in that scenario makes sense for me to pay a little bit of extra tax in on a salary to be Able to qualify for that loan at a better rate, so this comes into one of the legs of the stool. That Anderson talks about, and we talk about. Our events are this actually comes into business planning, because if I’m only looking at the tax side, it looks like wow.

That’s a terrible idea. If I’m just looking at the tax side right, I’m paying extra taxes to receive money out of my corporation and from a tax perspective, that’s a knock, but if i then take into consideration what I’m trying to accomplish now, all of a sudden. This makes a lot more sense, meaning yes, I’m taking a little bit of a tax hit up front. But ultimately, when i qualify for that loan, I’m getting cheaper money in regard to the amount of interest I’d be paying on that loan.

So then, the seesaw or the scale shifts in the other direction of absolutely I’d, rather pay a little bit of extra tax up front and get a far better or get a better term on the loan, especially if you think of it on a large sum for A loan, what that interest rate or what that interest rate difference would be and how that would look over that period of time. So when we talk about talking about taking a salary from a c corporation, yes, there may be double doubled, quote-unquote double tax implications.

If we take that salary out of the corporation, but realistically it’s not when you it’s your corporation, you own, it’s not such a bad deal. Number one number two is when we actually take what you’re trying to accomplish into account. It may make sense for it from a dollar for dollar basis when we start talking about loans, interest rates and things like that. So that’s it for this episode of carl free with carl, it’s been great being with you all again uh. As always, please take advantage of all of our free content out there. I know I’ll be tuning in to tax Tuesdays, because i love toby’s tax talks. Also, like i said, always keep up with our YouTube videos.

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