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How to categorize payment to myself?
As a LLC with no employees what is the proper way to categorize payment to myself (i.e my salary)? Would I use the wages category or create a new category such as "Distributions"?
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Inappropriate?Hey Dave, this is sticky, we try not to give actual accounting advice but more advice on how the app works. However I have sent this question to our personal accountant so he can shed light on your question.
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Inappropriate?What type of LLC was set up ? Was it a deregulated entity? (which is a sole proprietorship) Or was it set up as a Sub-S Corporation? Look your orignal SS-4 to determine the status.
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Inappropriate?Then he can not pay himself a salary. All the personal funds he takes out of the LLC will be classified as Owners Draws which is not an expense for the LLC.
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Inappropriate?Gotcha, that makes sense.
The question them becomes: "How does one track "Owner Draws" without them counting as an expense?
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Inappropriate?Good question, create an extra expense category called "LLC Owner Draws".
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Inappropriate?Hey Allan,
I have the same question. If I do as you suggested, will that count toward the Profit/Loss of the business? Which isn't accurate.
Or am I missing something completely?
Thanks,
Alex1 Comment
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Alex, we try not to give accounting advice, we provide accounting software. We have thought about providing accounting advice but we're still trying to work out the legalities of it.
Here's a link about owner draws, I personally haven't used owner draws as a freelancer, it's not a common practice. Most people categorize their payments as "wages" or "contract labor".
http://www.taxalmanac.org/index.php/D... -
Inappropriate?Allan,
I understand that. I'm *not* looking for accounting advice nor would I take it as such. I'm trying to figure out how to use the application correctly.
If LessAccounting categorizes my Owner Draws as expenses, then the service is all but useless to me, as this is incorrect.
Again, I'm not looking for accounting advice; just some help with using the service.
I’m undecided
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Inappropriate?Just categorize them as wages and don't worry about it. The idea is that Less Accounting is easy and not always "correct."1 Comment Add a comment
This answers the question
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Instead of listing "Owner Draws" as an expense category, could we also create a personal bank account and just show the draws as a transfer of funds instead of an expense. This would seem to keep our expense tracking cleaner and should more accurately reflect P&L. What do you think?
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Inappropriate?Got it. Thanks so much to both Allan and Steven; that was the fastest online tech support I've ever had.
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Inappropriate?"Correct" as in the GAAP way of doing things.
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Inappropriate?We are setup as an S-corp (single owner/employee). I am paid a wage but often pay myself distributions. How should these be filed in LA? -
Inappropriate?What we do is if it is a wage we use the Wages expense category and if it's a distribution we use the Non deductible expense category.
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