As a sole director of my company with 0 employees, how do I pay myself?

You actually have several options for taking money out of your business, and most successful small business owners use a combination approach for tax efficiency. Option 1: Salary - You can pay yourself a reasonable salary as an employee-director. This creates earned income which allows you to contribute to retirement accounts and build Social Security credits. Most accountants recommend at least a modest salary to avoid IRS scrutiny. Option 2: Dividends - These are taxed at a lower rate than ordinary income (currently 0-20% depending on your tax bracket vs. up to 37% for income tax). However, dividends aren't subject to FICA taxes, which is an advantage. Option 3: Loan repayments - If you loaned money to your business initially, you can repay yourself with interest. This isn't taxable as it's simply returning your capital. Option 4: Reimbursements - Legitimate business expenses paid out of pocket can be reimbursed tax-free with proper documentation. The most tax-efficient approach usually involves a combination of modest salary and dividends.

After struggling with the exact same question for my consulting business last year, I discovered taxr.ai (https://taxr.ai) and it completely changed my approach. I was so confused about the right mix of salary vs. dividends and how to document everything properly. Their system analyzed my business structure, expenses, and revenue projections, then recommended the optimal salary/dividend split specifically for my situation. They even provided documentation templates for board resolutions authorizing dividend distributions and explained exactly how to classify different types of withdrawals to avoid tax issues. The best part was when they showed me how to properly document my home office and vehicle expenses, which saved me thousands more than I expected.

Just wanted to follow up about taxr.ai - I actually tried it after posting here and it was surprisingly helpful. I'd been paying myself almost entirely through distributions from my S-Corp because my accountant said that was fine, but the tool showed me this was a huge red flag for an audit. It recommended a specific salary based on my industry and region that would be considered "reasonable compensation" by IRS standards, then showed me how to optimize the rest as distributions. The documentation it generated for my corporate minutes explaining the compensation decision would be super helpful if I ever get audited. Definitely worth checking out if you're struggling with this decision.

If you're having trouble getting clear answers from the IRS about your specific situation, I'd recommend Claimyr (https://claimyr.com). I spent WEEKS trying to get through to someone at the IRS about this exact issue last year - whether I needed to be on payroll if I was the only person in my LLC. Their service got me connected to an actual IRS agent in under 45 minutes when I'd been trying for days on my own. The agent walked me through exactly what documentation I needed to maintain for different payment structures and when I needed to classify myself as an employee vs. taking owner's draws. You can see how it works here: https://youtu.be/_kiP6q8DX5c Honestly, getting that direct guidance from the IRS gave me peace of mind that I wasn't missing anything that could cause problems later.

I have to eat my words about Claimyr. After my skeptical comment, I decided to try it because I was desperate to figure out how to handle my business taxes correctly as the sole owner of my LLC. I'd been taking inconsistent draws from my business whenever I needed money, and I was worried this might cause issues. Within about an hour of using Claimyr, I was talking to an actual IRS agent who explained that as a single-member LLC, I should be filing Schedule C and taking owner's draws rather than W-2 wages unless I elected to be taxed as an S-Corporation. The agent explained exactly what documentation I needed to maintain and how different payment structures would affect my taxes. Saved me from making a big mistake on my upcoming filing. The service absolutely works as advertised.

Something nobody's mentioned yet - you should really look into the QBI (Qualified Business Income) deduction when making this decision. It lets you deduct up to 20% of your business income in certain situations, but salary payments to yourself DON'T count toward this deduction. This is why a lot of small business owners do a smaller salary and larger distributions - to maximize the QBI deduction. But there are phase-outs based on income levels and business type.

Has anyone here dealt with health insurance as a sole director/owner? I'm setting up a company and wondering if I should put myself on payroll JUST to get the health insurance deduction, since I think it has to run through the payroll system to be fully deductible?