Small Business Owner Compensation
Contrary to what most people probably think, it is a big trouble for small business owners to decide how much they would take for their own and how much they leave for the use of their companies. Small business owner compensation will definitely go under thorough deliberation before it is actually decided upon.
That is why you must know what are the options that await you as an owner of a small business and which of this will be of the greatest help.
There are a lot of things that are actually being considered when compensation is concerned. All of the resources must be weighed, including you and your family’s expenses plus the business needs such as employee morale, long-term viability and the compensation expenses’ tax deductibility. One thing that has been decided by most small business owners is not compensating themselves anymore, particularly when the business is just starting. Instead of getting some salary, their compensation comes when they actually see that their business is growing. Once the small business grows, it also means that their investment’s value will also increase. Although it is a common thing at the start, once the business has already taken flight, most owners would no longer refuse compensation.
Small Business Owner Compensation: The Options
Another popular thing with new businesses is the deferred compensation. It means that the owner will only get his compensation if the business is already stable on its feet. The secret here is by having proper documentation. Retroactively, you cannot decide to have a deferred compensation if you would like it to be taken as tax deduction.
Owners of small businesses usually hire their family members as the employees in their business to supplement their own compensation. This type of arrangement exists not just in papers. The members of the family must have some work to do. When a child or spouse is employed by the business, the financial gain will remain within the family and it can be deducted to be a legitimate expense of the business.
At any point in time, the owners of small businesses can pay themselves with the business’ dividends. And even if the dividend can be of any amount, you must be careful enough that you will not withdraw too much that might result into the crippling of the business’s ability to conduct business. Also, you must be sensitive of your employees. If you lay off some of your staff this week, getting a big dividend is definitely not a wise action.
Fringe benefits are another deductible compensation form. In most cases, business owners are being allowed by the IRS to deduct some expenses like company cars and travel as long as they are used for the benefit of the business. Some cases, on the other hand, same benefits must also be provided to employees. Consult your business tax preparer to known which of the benefits are within the qualifications set by IRS.