Why Taking a Smaller Salary Can Mean More Money for You.

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Why Taking a Smaller Salary Can Mean More Money for You.

Encourager-In-Chief: December 4th, 2019

Business owners: Know your options.

Frequently when I meet with new entrepreneurial coaching clients, there’s a hesitancy when I ask them if their business is making money. The problem arises from a misunderstanding of what making money means.

Although most people do not discuss how much money they make, most people are brought up to think the more money you make the better. However, this is not 100% true—especially if you are a business owner. When most people start their businesses, they are thrilled if there’s any money left over at the end of the year! It means that they were profitable. The problem occurs in the second and following years if your business keeps making more money. You wind up paying capital gains taxes.

Capital gains taxes are the Internal Revenue Service’s way of saying, “congratulations on making more money this year than last year. We are going to take more of it away from you.” Capital gains taxes are higher than the taxes you normally pay. If you take a bigger salary, you are going to be taxed to a higher degree. However, if you take a smaller salary, you can also offset your income by taking a distribution.

A distribution is an amount of money you take which may or may not be on a continuing regular basis. Because it’s considered separate from your paycheck, it is taxed at a lower rate. For example, if you are currently paying yourself $2500 per paycheck, it might be beneficial for you to pay yourself $1500 in your paycheck and a $1000 distribution You can actually take out more money because a distribution is taxed at a lower amount.

I recommend that you speak to your accountant before making a decision about changing your income but by all means, do it, and find out if there’s a way for you to save and keep more of your own money.

It’s not how much you make that counts. It’s how much you keep.
- Business axiom

This excerpt is taken from my Survive and Thrive in Your Own Business seminar.

Survive And Thrive In Your Own Business

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I also encourage you to order my Survive and Thrive in Your Own Business video program, which covers this topic in much greater detail.

Survive and Thrive in Your Own Business

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