--- title: W2 Payroll for Business Owners description: "Avoid what's called a \"reasonable salary\" to chance. Ideally, your compensation should be part of your business plan. Here are some tips to help you plan." image: https://media.insognacpa.com/hubfs/How%20much%20should%20I%20pay%20myself%20on%20a%20W2.png --- [![Insogna logo small](https://media.insognacpa.com/hs-fs/hubfs/Insogna%20logo%20small.png?width=300&height=73&name=Insogna%20logo%20small.png "Insogna logo small")](https://insognacpa.com/) [![Insogna logo small](https://media.insognacpa.com/hs-fs/hubfs/Insogna%20logo%20small.png?width=300&height=73&name=Insogna%20logo%20small.png "Insogna logo small")](https://insognacpa.com/) [![Insogna logo small](https://media.insognacpa.com/hs-fs/hubfs/Insogna%20logo%20small.png?width=300&height=73&name=Insogna%20logo%20small.png "Insogna logo small")](https://insognacpa.com/) [![Insogna logo small](https://media.insognacpa.com/hs-fs/hubfs/Insogna%20logo%20small.png?width=300&height=73&name=Insogna%20logo%20small.png "Insogna logo small")](https://insognacpa.com/) Content Title Description < Previous page Next page > [Why Us](https://insognacpa.com/why-us) | [Business Accounting](https://insognacpa.com/business-accounting) | [Fractional CFO](https://insognacpa.com/fractional-cfo) | [Minimizing Taxes](https://insognacpa.com/tax-strategy/) [Building Wealth](https://insognacpa.com/building-wealth) | [Learning Center](https://insognacpa.com/learning-center)| [Contact Us](https://insognacpa-6129290.hs-sites.com/en-us/contact-us) [S Corp](https://media.insognacpa.com/blog/tag/s-corp) # How much should I pay myself on a W2 before December 31? By [Chase Insogna, CPA](https://media.insognacpa.com/blog/author/chase-insogna-cpa) Oct 11, 2022 3:15:41 PM 2 Minutes Read As a business owner, how much should I pay myself on a W2 before year end? This is a common question we get from small  business owners. ![Business man paying with a credit or debit card](https://media.insognacpa.com/hs-fs/hubfs/Business%20man%20paying%20with%20a%20credit%20or%20debit%20card.jpeg?width=450&height=300&name=Business%20man%20paying%20with%20a%20credit%20or%20debit%20card.jpeg) ## How to pay yourself as a business owner depends on the business structure, the stage of growth of your business, and other factors. ### There are two main ways to pay yourself as a business owner: #### 1) Salary You pay yourself a regular salary, withholding taxes from your paycheck. This is legally required for businesses that are structured as S- or C-corporations or a limited liability company (LLC) taxed as a corporation. The IRS has a “reasonable” compensation requirement, which means your salary should be comparable with what someone else doing the same job in your industry would be paid.   #### 2) Owner’s Draw Outside of running W2 payroll, if you are a sole proprietor, S-Corp, or Partnership, all remaining money in your business account can be distributed to the owners, equally per their ownership percentage, at any time. You are taxed on all of your profits annually, so all the remaining cash in your business account is yours to choose what you do with. Just remember you will owe federal tax on your profits when filing your personal 1040 taxes.   ### How to decide? Your specific business structure dictates whether you can take a salary and/or an owner’s draw.   ### How much should you pay yourself? Great question! We get this one all the time. Most people just guess an amount, which usually causes them to over-pay unnecessary payroll taxes, which is a waste of money.   #### Start with Your Business' Net Profit Your reasonable salary should be based on your business's net profit, which is your business revenue minus all business expenses, and/or using our third-party software to answer a number of questions to determine what your maximum salary amount should be.   #### Avoid Risking an IRS Audit What you want to avoid is risking an IRS audit because you did not pay yourself a high enough W2 salary, or have any justification for how you came up with your W2 salary amount. ![Blue Ring Binder with Inscription Budget Planning on Background of Working Table with Office Supplies and Laptop. Budget Planning Business Concept on Blurred Background. 3D Render.](https://media.insognacpa.com/hs-fs/hubfs/Blue%20Ring%20Binder%20with%20Inscription%20Budget%20Planning%20on%20Background%20of%20Working%20Table%20with%20Office%20Supplies%20and%20Laptop.%20Budget%20Planning%20Business%20Concept%20on%20Blurred%20Background.%203D%20Render..jpeg?width=400&height=300&name=Blue%20Ring%20Binder%20with%20Inscription%20Budget%20Planning%20on%20Background%20of%20Working%20Table%20with%20Office%20Supplies%20and%20Laptop.%20Budget%20Planning%20Business%20Concept%20on%20Blurred%20Background.%203D%20Render..jpeg) ## Avoid These Common W2 Mistakes Avoid making these common mistakes when paying your W2 salary: - Mixing personal and business finances - Not budgeting for taxes - Not paying yourself enough W2 salary and risking an IRS audit, per IRS rules on S-Corporation reasonable salary. Ideally, your compensation should be part of your business plan. Your financial projections should include the amount of your salary or owner’s draw to help you understand what your business needs to grow. If you need help determining which method works best for your situation, give us a call. ![Orange Tips and Tricks Button on Computer Keyboard. Internet Concept.](https://media.insognacpa.com/hs-fs/hubfs/Orange%20Tips%20and%20Tricks%20Button%20on%20Computer%20Keyboard.%20Internet%20Concept..jpeg?width=450&height=300&name=Orange%20Tips%20and%20Tricks%20Button%20on%20Computer%20Keyboard.%20Internet%20Concept..jpeg) ## More Tax Tips Looking for more W2 business owner tips like these? Download our new, [Year-End Tax Planning Guide](http://insognacpa-6129290.hs-sites.com/year-end-tax-planning-guide?__hstc=85883334.68cab78ef7f642fcf17a9fdc796e1c3a.1630692620968.1665145070609.1665518897133.160&__hssc=85883334.2.1665518897133&__hsfp=1595929950) today.  ## Recommended For You [![tax planning strategies](https://media.insognacpa.com/hubfs/tax%20brackets.png)](https://media.insognacpa.com/blog/year-end-tax-planning-strategies) [Tax](https://media.insognacpa.com/blog/tag/tax) [Business Tax](https://media.insognacpa.com/blog/tag/business-tax) 1 Min Read ### [What are some year-end tax planning strategies I should know?](https://media.insognacpa.com/blog/year-end-tax-planning-strategies) [![Picture of Chase Insogna, CPA](https://media.insognacpa.com/hubfs/Chase-Insogna-1024x1024.png) Chase Insogna, CPA Mar 6, 2023 2:10:19 PM](https://media.insognacpa.com/blog/author/chase-insogna-cpa) [![Maximizing Tax Benefits: Inflation's Surprising Impact on Federal Tax Breaks](https://media.insognacpa.com/hubfs/inflations-impact-federal-tax-breaks.png)](https://media.insognacpa.com/blog/maximizing-tax-benefits-inflations-surprising-impact-on-federal-tax-breaks) [Tax](https://media.insognacpa.com/blog/tag/tax) [Tax-Deductions](https://media.insognacpa.com/blog/tag/tax-deductions) 3 Min Read ### [Maximizing Tax Benefits: Inflation's Surprising Impact on Federal Tax Breaks](https://media.insognacpa.com/blog/maximizing-tax-benefits-inflations-surprising-impact-on-federal-tax-breaks) [![Picture of Chase Insogna, CPA](https://media.insognacpa.com/hubfs/Chase-Insogna-1024x1024.png) Chase Insogna, CPA Jun 23, 2023 1:37:50 PM](https://media.insognacpa.com/blog/author/chase-insogna-cpa) [![401k vs IRA](https://media.insognacpa.com/hubfs/401%20vs%20IRA.png)](https://media.insognacpa.com/blog/401k-vs.-ira-retirement-planning-for-you-your-ecommerce-business) [eCommerce](https://media.insognacpa.com/blog/tag/ecommerce) 3 Min Read ### [401K vs. IRA: Retirement Planning for You & Your eCommerce Business](https://media.insognacpa.com/blog/401k-vs.-ira-retirement-planning-for-you-your-ecommerce-business) [![Picture of Chase Insogna, CPA](https://media.insognacpa.com/hubfs/Chase-Insogna-1024x1024.png) Chase Insogna, CPA Jan 10, 2023 1:02:28 PM](https://media.insognacpa.com/blog/author/chase-insogna-cpa) Insogna CPA 3355 Bee Cave Road, Suite 503 Austin TX 78746 (512) 891-8200 - [Contact Us](https://insognacpa.com/contact-us/) - [Customer Reviews](https://insognacpa.com/testimonials-and-reviews/) - [Careers at Insogna CPA](https://insognacpa.com/careers/) - [Privacy Policy](https://insognacpa.com/privacy-policy/) - [Texas Board of Accountancy License](https://www.tsbpa.texas.gov/php/fpl/frmlookup.php?x=T71ujVIEr%2Fg%3D) [Follow us on Facebook](https://www.facebook.com/InsognaCPAs) [Follow us on LinkedIn](https://www.linkedin.com/company/insognacpa-com/) [Follow us on Twitter](https://twitter.com/InsognaCPA) [Follow us on Instagram](https://www.instagram.com/insognacpa/) ```json { "@context" : "https://schema.org", "@type" : "BlogPosting", "author" : { "@type" : "Person", "name" : "Chase Insogna, CPA", "url" : "https://media.insognacpa.com/blog/author/chase-insogna-cpa" }, "dateModified" : "2022-11-12T00:46:45.777Z", "datePublished" : "2022-10-11T20:15:41.000Z", "headline" : "W2 Payroll for Business Owners", "image" : [ "https://media.insognacpa.com/hubfs/How%20much%20should%20I%20pay%20myself%20on%20a%20W2.png" ], "mainEntityOfPage" : { "@id" : "https://media.insognacpa.com/blog/w2-payroll-for-business-owners", "@type" : "WebPage" }, "publisher" : { "@type" : "Organization", "logo" : { "@type" : "ImageObject", "url" : "https://media.insognacpa.com/hubfs/InsognaLogoSite2020.png" }, "name" : "Insogna CPA" } } ```