Question by sunnskye: Does a small business owner save taxes by including his own salary as an expense?
If the salary is included as an expense, then the income tax for the business is less, but of course, the owner has to pay his own income tax. So is it better to not pay yourself a salary and somehow finesse it so that you deduct everything and pay no income tax? References would really help here. Thanks!
Best answer:
Answer by ninasgramma
Since this is a small business, I assume it is not incorporated.
A sole proprietor cannot pay himself a salary. Partners also do not pay themselves salaries but pass through income to the partners, which is entered on the individual returns.
So the answer is no, you cannot deduct everything and pay no income tax.
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you are paying double tax. only take what you need for bills
By small business Im assuming you mean a sole proprietorship. A sole proprietor doesnt pay himself a salary. The income gets reported on Schedule C on his personal tax return, so the owner is paying his own income taxes AND self-employment tax on the net profit from the business.
A benefit is that a sole proprietor can hire his spouse, or other family members as employees, and deduct their salaries as expenses.