If you’re a C-corp owner and want to get some cash out of your business, there are several options. However, if you don’t pay yourself or your employees in salary or dividends, then it’s important that you consider other options before resorting to dividend distributions as your primary means of generating income.
Know your goals
- What is your goal?
- How much money do you need?
- How long do you need it for?
- How much risk are you willing to take, and what are your other options (if any)?
Use dividends sparingly
If you’re thinking of selling your business, the first thing to do is make sure that you don’t get caught in the double-taxation trap. That’s when two different tax systems apply to transactions that occur during one year—and often result in an unexpected tax bill.
One way to avoid double taxation is by using dividends sparingly. Dividends are generally taxed at both corporate and individual levels (the latter being what most people think about when they hear “double taxation”). However, if you own shares in a C-corp, your dividend income will be subject only to corporate taxes—and not self-employment taxes on top of those. This can help reduce your overall tax bill by reducing the amount of money going into Uncle Sam’s coffers!
Pay yourself in salary
Paying yourself a salary is the best way to get money out of your C-corp and avoid double taxation. You can pay yourself as much as you want, but you have to pay payroll taxes on it. This may not seem like much, but if you’re receiving a $50K base salary and are taxed at 30%, that’s $15K in tax liability!
You can also pay yourself by either giving out dividends or bonuses (and paying them in cash). If this is what you want to do then make sure that every quarter after paying your quarterly expenses—including wages—you give another $0-$5K each quarter back into employees’ hands because otherwise they will be classified as self-employed individuals by default; which means all their income would be taxable twice: once when earned and again when spent by them (e.g., buying groceries).
Consider a Roth IRA conversion
The best way to get cash out of a C-corp is through a Roth IRA conversion. A Roth IRA is an investment account that you can use to save money on your taxes, and it’s also called a “traditional” IRA because it was originally intended for people who were not covered by Social Security. But now that we all have access to this great program, anyone can open one!
If you’re considering converting your traditional IRA into a Roth, here are some things you need to know:
- You can only do this once in your lifetime. Once converted from one type of retirement plan into another type of retirement plan—or vice versa—you cannot go back! (However, if there’s any money left over after paying taxes on the conversion, then maybe try again?)
Explore other options
You should not forget the tax consequences of each option. Options are often taxed at different rates, which means that if you choose an option with a lower tax rate, you’ll pay more in taxes over time than if you take the other option. The time value of money can also play a role here as well; if you sell your stock at $10 per share and it goes up to $11 per share later on (and then back down again), chances are that this increase in value will mostly be due to market forces rather than some magical ability on your part—so there’s no reason why someone shouldn’t just wait until they see an opportunity before making their move! Finally, risk profile: what kind of risk do we have here? Is it low-risk vs high-risk?
There are various ways that you can get money out of your C-corp and hopefully avoid double-taxation.
- Dividends: If you have a C-corp with no stock options, then all distributions will be taxed as ordinary income. However, if your company has stock options available to employees, then it will be considered as a dividend from the company’s perspective. In this case, the employee receives all of his/her shares as cash along with any dividends paid by the company itself; however, since he/she owns them through an S corporation (and therefore has no other choice), he/she must pay taxes on these amounts at his own rates—which may not be low enough for him or her depending on how aggressive you’re willing to go with deductions!
- Salary: If there is no salary attached to your position within an S corp then there won’t be any taxable income generated by being paid out in cash every month—but there could still be other potential benefits like tax advantages through 401k plans etcetera., so it might behoove us all just waiting until after filing season before making any decisions about our finances.”
As you can see, there are many options available to you if you want to get money out of your C-corp. The most important thing is that any strategy should be based on your goals and needs. If you still have questions about the best way for you to avoid double-taxation, reach out to a professional tax advisor who can help!