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The decisions you make today create what you own tomorrow. That's why you need to code your wages and know the differences between them. You want to create straight lines and clarity across all the players by making sure you're breaking down everything in your books.
Today, let’s delve into the officers compensation vs. shareholder compensation vs. wages & salaries. Knowing the difference is important. You want the tax return filed more efficiently and accurately because “reasonable compensation” is a big deal.
Being able to draw those lines and separate them out also allows you to analyze your business better. For instance, officers compensation and shareholders wages should not be reflected in your operation. And if you're a sole proprietor or a single-member LLC, you don’t get wages and salaries. Instead, you get an owner’s draw, which should not be part of your expenses.
This is actually very straightforward if you understand the hats you have on. States and federal agencies are ever more transparent now and all these things are going to tie down at some point. Therefore, you have to make sure that your processes around your finances and your partnerships are all on the same page.
In this episode, you will hear:
- The owner’s draw in a sole proprietorship or single-member LLC
- The difference between a shareholder and an officer
- What happens when you’re a shareholder who’s also working in the business?
- The team’s wages go to W2 wages and salaries, not contract labor
- Filing forms and timelines
- Managing expectations around relationships
- The benefits of getting your books correctly right now
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