You built your eCommerce business from the ground up. The sales are rolling in, your brand is growing, and now you’re wondering…
How do I actually pay myself?
Do I just transfer money whenever I need it?
What about taxes… am I doing this legally?
These are the questions every Shopify, Amazon, and online business owner asks at some point. And the truth? How you pay yourself depends on your business structure and getting it wrong could cost you in taxes (or get the IRS knocking).
Let’s break it down so you can pay yourself confidently, stay compliant, and keep more of your hard-earned cash.
Sole Proprietor vs. S-Corp: Which One Are You?
Before you decide how to pay yourself, you need to know what type of business entity you have because that changes everything.
1. Sole Proprietor (LLC or No LLC at All)
If you haven’t elected an S-Corp and you’re running your store solo, you’re likely operating as a sole proprietor, even if you have an LLC.
How you pay yourself:
✔ Take owner draws (aka pulling money straight from business profits).
✔ No official paycheck—just transfers from your business account to your personal account.
✔ Taxes? You pay self-employment tax (15.3%) on all your profits.
Watch out for tax surprises!
Because taxes aren’t withheld upfront, you’ll need to set aside 25-30% of your profits for quarterly tax payments.
Need help estimating taxes? Insogna CPA, a leading Austin tax accountant, makes sure you’re setting aside just the right amount—no overpaying, no nasty surprises.
2. S-Corporation (LLC Taxed as an S-Corp)
If your business is pulling in $50,000+ in profit per year, switching to an S-Corp could save you thousands in taxes.
How you pay yourself:
✔ You must pay yourself a salary (W-2 wages).
✔ After paying yourself, you can take distributions (extra profits without self-employment tax).
✔ Unlike sole proprietors, you only pay self-employment tax on your salary, not on all business profits.
IRS Alert: If you don’t pay yourself a “reasonable salary” and take only distributions, the IRS can slap you with penalties and back taxes.
Not sure what a reasonable salary is? Insogna CPA, a trusted CPA in Austin, Texas, helps S-Corp owners set up a legit payroll system that maximizes tax savings without raising red flags.
Sole Proprietor vs. S-Corp: What’s Best for Your Paycheck?
Here’s how taxes work for each structure:
Business Type | Taxes on Salary | Taxes on Profits | How You Pay Yourself |
Sole Proprietor (LLC) | N/A | Self-employment tax (15.3%) + income tax | Owner draws (direct transfers) |
S-Corp (LLC Taxed as S-Corp) | Payroll taxes (Medicare & Social Security) | Only income tax (NO self-employment tax on distributions!) | Salary (W-2) + Distributions |
Bottom line:
- If you’re making under $50K/year in profit, a sole proprietorship is fine.
- If you’re making $50K+ in profit, an S-Corp can help you avoid unnecessary taxes.
Need help deciding? Insogna CPA, a top Austin small business accountant, can analyze your numbers and recommend the best strategy.
How to Pay Yourself Without IRS Trouble
Regardless of your business type, you need to keep things clean to avoid IRS issues.
Keep Personal & Business Finances Separate
- Have a business bank account for all revenue & expenses.
- Pay yourself from business profits not by swiping your business card for personal stuff.
Set Aside Money for Taxes
- Sole proprietors: Save 25-30% of profits for quarterly tax payments.
- S-Corp owners: Payroll taxes cover some, but you may owe more on distributions.
Follow the IRS Rules on “Reasonable Salary” (For S-Corp Owners)
- The IRS expects S-Corp owners to pay themselves a fair salary before taking distributions.
- Pay yourself what you’d pay someone else to do your job (not $10K while taking $90K in distributions).
Not sure if your salary is “reasonable”? Insogna CPA, a trusted Austin, TX accountant, helps eCommerce sellers stay compliant while paying themselves the smart way.
Let’s Make Sure You’re Paying Yourself the Right Way
This isn’t just about transferring money, it’s about protecting your business, avoiding IRS issues, and keeping more of your profits.
At Insogna CPA, we help Shopify and Amazon sellers:
✔ Choose the best tax structure to maximize savings
✔ Set up payroll & owner distributions correctly
✔ Optimize tax strategies for long-term growth
Schedule a consultation with Insogna CPA today, and let’s build a tax plan that works for you!
Whether you need a small business CPA in Austin, an Austin, TX accountant, or expert guidance from one of the top Austin CPA firms accounting firm, we’ve got you covered. Let’s do this!