You started your business, money’s finally coming in, and now you’re wondering: How do I actually pay myself? Do I take a salary like an employee? Just transfer money from my business account? Or do I need something called a “distribution”? If this sounds familiar, you’re not alone. I get this question all the time from business owners—especially those who are moving from side hustle to full-time business. How you pay yourself depends on your business structure, and each setup comes with its own tax rules, forms, and reporting requirements. Start With Your Business Structure Before deciding how to pay yourself, you need to know how your business is classified with the IRS. That’s the foundation for everything else. If you’re a sole proprietor or a single-member LLC, you and your business are legally the same entity. That means there’s no separate payroll process—you simply take money out when you need it. This is called an owner’s draw, and you report your business income and expenses on Schedule C (Profit or Loss From Business) attached to your personal Form 1040. If you’re part of a partnership or a multi-member LLC, it’s a little different. The business itself doesn’t pay income
1099 Contractor vs S-Corp; When Should You Make the Switch If you earn income as a 1099 contractor, you may have heard that forming an S-Corporation can reduce taxes. That statement is often true in the right situation, but it is not a one-size-fits-all strategy. The benefit depends on how much you earn, how your business is structured, and whether the added administrative requirements make sense for you. To understand when a switch is appropriate, it helps to first understand how each structure is actually taxed. What It Means to Be a 1099 Contractor (Schedule C) A 1099 contractor is someone who works for themselves rather than as an employee. Instead of receiving a W-2, you receive a Form 1099 showing how much you were paid by clients or companies during the year. From a tax perspective, this income is reported on Schedule C, which is simply the section of your personal tax return that tracks business income and expenses for self-employed individuals. In simple terms, Schedule C works like this: you report all the money your business earned, subtract your business expenses, and the remaining amount is your profit. That profit is then taxed on your personal return. The