July 7, 2008, 12:42 pm
Paying your own salary
Bidhu Prakash, Ellicott City, Md.
My wife and I are the owners and the sole officers of an LLC. We make money only when we are on a project. Do we still need to pay a salary to ourselves if we are between projects and not making any money during this period?
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No! Technically, your salaries are simply a distribution of profits. These profits are allocated to you based on your percentage of interest as provided for in your operating agreement. In any given year you are taxed on your distributive share of the profits, that occurred in that operating year, through IRS forms 1065(Information return) then through schedule K-1 (distribution of profits), then via your 1040 and IRS Schedule C).
My advice: Keep formal accouting records(Quickbooks is good. Create monthly financials (Again Quickbooks)
Pay estimated taxes on your monthly profits. Your tax liability must be 90% satisfied by year-end to avoid penalties for underpayment