pay yourself as an entrepreneur Heather Ryan | RV Tax Queen |

As a sole proprietor, you deserve to get paid. However, it’s important to know how to pay yourself as an entrepreneur. Who doesn’t want to be compensated for their hard work, right?

You’re an entrepreneur which means you are your own boss. This can be quite rewarding but it also comes with some pain points. Paying yourself will hopefully give you a sense of pride or accomplishment in your business. Am I right?

Who doesn’t feel happy when they can live off their own business? No one. Ever!

However, come tax time, you get a surprisingly large tax bill. Perhaps way bigger than you expected. Now what?

Let’s take a look at the process of how to pay yourself as an entrepreneur This will eliminate any surprises come tax time and let you stay in control of your finances throughout the year.

Pay yourself as an entrepreneur

Here’s how to stop the vicious cycle of being frustrated over finances especially surprise tax bills.

In order to stop being frustrated over your business finances, let’s consider yourself an employee of the business. After all, you are the glue that holds it together, right?

Since you are a vital part of your business, you need to prioritize paying yourself for your hard work just like you would any employee. This doesn’t always mean paying yourself a W-2 wage through a payroll service. This simply means you need to pay yourself on a regular basis to support your awesome nomad lifestyle.

It also means you need to factor taxes into the equation.

Sometimes as entrepreneurs you put your own financial needs to the side. Eventually, this makes you wonder why the heck you’re doing all this hard work. Well, change that mindset. Take yourself seriously and make sure to pay yourself. Then you might see your happiness increase and your business thrive even more.

Pick the best method

Now that you’re ready to pay yourself properly, how do you actually pay yourself as an entrepreneur? There are several payment methods for self-employed business owners.

You’ll need to choose the best option based on the structure of your business.

Sole proprietor/single-member LLC

As a sole proprietor, the best method for paying yourself a “salary” is to do an electronic transfer from your business checking account to your personal account. This is the simplest method to pay yourself as an entrepreneur. In the eyes of the IRS, all money in your business account is yours.

You’re free to withdraw money whenever you’d like. I recommend keeping it on a regular schedule as if you are an employee. This helps you budget for personal spending.

To maintain proper bookkeeping and separation of you from your business, it’s a good practice to set up separate bank accounts – one for personal use and another for business income and expenses. They can be at the same bank which makes transferring between the two even simpler. You can record this transfer as an Owner Draw in your bookkeeping software.

Think of this as your boss hat writing a check/initiating a bank transfer and your employee hat making the deposit/receiving the transfer as salary. If you want to have proper bookkeeping this is the best method to use to pay yourself as an entrepreneur.

I also recommend transferring money to a personal tax savings account so it’s available when it’s time to pay your tax liability. Simple to do. Each month when you pay yourself also transfer money into the tax savings account.


Paying partners can actually be very similar to a sole proprietor. All money in the partnership bank account essentially belongs to the partners. It can get distributed via a direct deposit or bank transfer and classified as partner draws or partner distributions. Again, a partnership should have a separate bank account and no personal spending should happen from the business account.

I recommend paying any partners including yourself on a regular schedule once again. This is to allow all the partners to have personal budgeting for paying personal bills. I think most of us appreciate regular payments.

This doesn’t mean you can’t take out bonus payments if a business is doing well. They, too, can be classified as a partner draws or distributions.

S corp

Having an S corp makes paying a salary a requirement!

Let’s repeat that.

A business set up as an s corp is required to pay a regular salary to its owners.

This salary is based on reasonable compensation for whatever work you are doing for the corporation. Think of your title and also your geographical area. If you were to go out and get a job with that same set of responsibilities, what would you earn? Now pay yourself a similar salary so that in the eyes of the IRS, you are running your business in full compliance.

Over the years owners of S corps have come under much more scrutiny from the IRS if they don’t pay themselves a proper salary. Because of this many entrepreneurs face penalties and interest for incorrect payroll tax reporting. Keep this in mind if you’re thinking of not paying yourself the proper amount. The IRS may require you to do so in an audit!

If you are confused or unsure how to handle this, talk to with a tax professional or another financial expert to get this set up correctly.

For bookkeeping, an S corp will have owner’s compensation or wages instead of owner draws. If you decide to take more than your salary out of the business bank account, then you would categorize those withdrawals as owner distributions.

Why the difference?

Because owner wages are an expense to the business and owner distributions are not.

Calculate your salary

Now that you understand you should be paying yourself a regular salary, how much should you pay yourself? When paying yourself a salary, you need to also consider taxes. What’s the proper percentage though?

If you calculate taxes throughout the year, you should avoid struggling with a tax bill come tax time. Remember I don’t like tax surprises for entrepreneurs. It should be clear throughout the year what you need to paying as your quarterly estimated payments and saving for any tax liability.

What’s the exact formula to pay yourself as an entrepreneur?


Profit (or loss) = business revenue – business expenses

Taxes  = 25-30% of profit

Salary = 70-75% of profit

This is the simplest method to use. Your personal amount might vary a little bit from this, but this is a good general starting point.

If you’d like to keep some profits to reinvest back into your business or keep for cash flow in case of a down period, then that formula looks like this.

Profit (or loss) = business revenue – business expenses

Taxes  = 25-30% of profit

Save in business account = 10% of profit

Salary = 60-65% of profit

If you’d like to get some tax planning for your personal situation, don’t hesitate to contact me. I really enjoy helping entrepreneurs stay on track with taxes throughout the year and avoid any surprise bills at tax time. I strive to help you understand your numbers and how much you should or could be paying yourself.

Seriously, reach out to a tax professional for tax planning! It can make all the difference.

If you live in a state with state income taxes, you’ll also need to take this is account when saving for taxes. I think many RV entrepreneurs have chosen tax-free states to avoid this issue. However, if you haven’t, you may need to save a little extra for state income taxes.

Let’s look at an example to show you the exact numbers.

Let’s say your business takes in $8,000 in monthly revenue and has $1,500 in monthly expenses.

Monthly profit would be $6,500 = $8,000 – $1,500

Monthly taxes would be $1,950 = $6,500 x 0.30 (30% of profit)

Monthly reinvestment  = $650 = $6,500 x 0.10 (10% of profit)

Your paycheck = $3,900 = $6,500 x 0.60 (60% of profit)

If these numbers are similar to your business, then you would pay yourself a “salary” of $3,900/month to cover your personal expenses.

Feel free to use this formula to not only calculate how much you can pay yourself each month but also how much you need to put aside for taxes.

Taxes as a self-employed individual

In the above calculations, I show taxes as a catch-all category. This amount includes your self-employment tax as well as your income tax.

A quick note about self-employment taxes because I could write a whole post to help explain them. Simply put as a self-employed individual (either a sole proprietor or partner including LLC owners) you owe 15.3% for Social Security and Medicare as self-employment taxes. This is due whether you make enough to pay federal income taxes or not.

Yes. That’s right. You may owe self-employment taxes even if you don’t have enough income after deductions and credits to owe federal income tax!

I stress this to all entrepreneurs to avoid any surprises. It also makes you aware of saving for your tax liability. As you save for taxes, you should also be making estimated quarterly tax payments. These payments will include your self-employment tax and any personal income taxes you might owe. This is where the 30% of income comes in to play as shown in the above formula.

As you recall, the self-employment tax is 15.3%. The other 15% or so is for your federal and state tax obligation. This all gets lumped together to form your total tax liability for any given tax year.

Remember I suggest you have a separate tax savings account where money gets transferred each time you pay yourself. This way you are saving for taxes separately and understand that is not money to be spent on other things. When it’s time to make an estimated tax payment, you have the cash ready to go. No surprises.

Reward yourself with a salary

Now that you understand how to calculate your paycheck and save for taxes, you should be well on your way to feeling more confident with your business finances. You also should understand how to calculate your “salary” as a sole proprietor and pay yourself as an entrepreneur.

If you find the formula is not working for you, then change it up a bit. Shift it up or down to account for your business numbers and find the perfect balance. If numbers aren’t your thing, then reach out to a tax professional for some tax planning.

Keep in mind it’s important to not work for free so you feel rewarded and excited to keep moving forward with your business. However, it’s just as important to save and prepare for tax time! Take it from the “Tax Queen” no one likes or wants a surprise tax bill.

If you’re still struggling with how to save on your taxes as an entrepreneur, then check out my post about the 7 ways to save.

Otherwise, get back to being your own boss and do something great!

RV Tax Queen

I’m a numbers person—but don’t let that scare you. I’ve been an enrolled agent (EA) since 2014 and a nomadic business owner since 2016. Because I’m a nomad myself, I know exactly how stressful life on the road can be.

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Nomad Business Academy offers mini-courses on everything you need to know to run a nomadic business, from which business entity is right for you (and what a “business entity” even is) to how to navigate self-employment taxes to learning if S Corp is a good fit for you and so much more.



This website is for general information only and is not intended to substitute for obtaining legal, accounting or financial advice. It is not rendering legal, accounting or other professional advice. Presentation of the information on this website is not intended to create a client relationship. For specific tax assistance please consult a tax professional on an individual basis.

While I make every effort to furnish accurate and updated information, I do not guarantee that any information contained in this website is accurate, complete, reliable, current or error-free. I assume no liability or responsibility for any errors or omissions in its content.



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