Overview of Holding Companies
A holding company owns and consolidates ownership of other companies, typically maintaining oversight through controlling stock ownership. Subsidiaries wholly owned by a holding company may not pay taxes on profits.
Strategies for Paying Yourself as a Business Owner
The 60/40 Rule
- Pay yourself 60% of income as an employee salary and 40% as distributions.
- Determine your salary based on net profit, after expenses and obligations, and compare it to similar roles for reasonable compensation.
Legal Payment Methods Based on Business Types
- Sole Proprietors and Partners: Withdraw cash from the business.
- Larger Businesses: Add yourself to the payroll for salary payments or consider a combination of methods.
Considerations for Business Owners
- Owner’s Draw: Flexible way to pay yourself from business profits.
- Expenses and Taxes: Take into account the financial needs of the business to cover taxes, overhead expenses, and maintain financial stability.
Payment Options Based on Business Type
- Sole Proprietor or Single-member LLC: You have the flexibility to withdraw funds without affecting tax liability.
- Pty Ltd Company: Pay yourself in the form of a salary similar to how employees are remunerated.
Salary Payment and Options
- Consider various ways to pay yourself such as a draw, salary, or a combination method.
C Corp Owners and Salary Payments
C corp owners may have specific requirements regarding salary payments. Make decisions based on your business setup and financial needs.