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How Do I Pay Myself in a Single-Member LLC or S Corporation? | LLC vs S Corp & LLC Taxes Explained - YouTube
Channel: All Up In Yo' Business with Attorney Aiden Durham
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hello everyone I'm attorney Aiden Kramer
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with the law office of Aiden H Kramer in
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Colorado and you're watching all up in
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your business since I get a lot of
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questions and a lot of the same
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questions I figured I would take a few
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videos to answer those questions most of
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the questions that I get have to do with
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single member LLC's I'm guessing because
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there are a lot of single member LLC's
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and it can be kind of confusing running
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them because you feel like you can kind
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of do whatever you want since you're the
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only owner but there are still roles and
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laws that you have to follow so all
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these questions that I'm going to be
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answering in this video and then a few
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of the next ones have to do with
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single-member LLC so the one question
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that I absolutely get more often than
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any other questions is how do you pay
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yourselves in a single-member LLC if
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you're the only owner how and when and
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under what method are you supposed to
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pay yourself so that's what I'm going to
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answer today so as you can probably tell
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I take a lot of pride in the high
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quality of these all up in your business
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videos so in that spirit I decided to
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hire a really expensive fancy graphics
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design company to come in and design
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some pictures for me to help explain how
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you pay yourself in a single-member LLC
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so I hope these graphics help me explain
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that and I hope you guys appreciate it
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because man where they expensive the way
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to pay yourself in a single-member LLC
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is going to differ depending on whether
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or not you've elected to be taxed as an
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S corp if you're not sure what an S corp
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is go ahead and look back to my video
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what the heck is an S corp and hopefully
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it'll answer that question for you
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alright are you ready for these
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fantastic graphics let's get going with
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it
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okay so as you can see here we have two
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business owners you can tell their
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business owners because they're carrying
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briefcases and they're thinking about
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money they're both the sole owners in a
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single-member LLC as you can see in this
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fantastic graphic this business owner
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has elected to not be treated as an
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Corp for tax purposes this one on the
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other hand has elected to be taxed as an
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escort
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so as the graphic shows when you're not
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treated as an S corp any money that goes
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into the LLC is treated basically as
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personal income to the business owner
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and all of that income is subject to tax
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at the personal level of the business
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owner and is also subject to
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self-employment tax so because of that a
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business owner that's not treated as an
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S corp can be subject to a pretty high
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tax rate this business owner on the
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other hand since the LLC is being taxed
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as an S Corp is a little bit different
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the money goes into the LLC and then the
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business owner has to take what's called
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a reasonable salary the IRS doesn't
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really give a whole lot of guidelines
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about what a reasonable salary is but
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it's a good thing to talk over with your
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accountant or with your tax attorney
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business attorney to figure that out the
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LLC
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owner gets paid a reasonable salary that
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salary is subject to taxes and subject
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to those self-employment taxes the rest
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of the money that the business owner
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takes above that reasonable salary is as
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a dividend and is not subject to those
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self-employment taxes so if your
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business is making a certain amount of
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money depending on what it is and what
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industry you're in and how much that
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reasonable salary would be the S corp
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election could potentially save you a
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lot of money in taxes that's the basis
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between an S Corp and an LLC as far as
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tax goes so what does that have to do
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with paying yourself well I'll tell you
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it has to do since the business which is
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not being taxed as an S Corp all of that
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money is coming in as personal income
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for the business owner the business
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owner can basically pay himself however
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whenever and however much he wants to
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well that's true
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the business owner has to keep a few
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things in mind you have to make sure
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that after you've paid yourself whatever
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you're going to pay yourself the LLC is
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still adequately capitalized so this
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means there has to still be enough money
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in the business in the name of the
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business to pay for overhead to pay for
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debt to pay for expenses that you expect
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to have and to potentially grow your
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business in the future
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so just because your business is
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bringing in ten thousand dollars a month
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it doesn't mean you should be taking all
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that as your personal spending money and
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paying yourself ten thousand dollars a
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month you need to keep some of that in
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the business for those expenses and to
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grow your business and you also have to
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make sure you save money to pay for
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those taxes because with the
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self-employment tax you're going to be
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subject to a pretty high tax rate and so
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you could potentially have to pay a lot
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of taxes so after you pay yourself you
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need to make sure you put away some of
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that to pay for those taxes so when you
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are in an LLC and you're not being
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treated as an S corp the way you pay
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yourself is you cut yourself a check out
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of the business account and in your
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books you would call that a member
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distribution or a member withdrawal it's
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not really payroll and it's not a salary
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it's not deductible like payroll is so
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it's really you want to just call it a
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member distribution or a member
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withdrawal something similar to that in
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your book so I will pull back the
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curtain a little bit I like to be really
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transparent with you guys
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and I try to explain things as clearly
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as I can so in the spirit of that I'm
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going to describe to you how I pay
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myself I am a single member LLC and I'm
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not treated as an escort the reason for
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that if you're wondering is because I've
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only been in business for a year and I
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didn't think that I would be making
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enough in this year to really justify
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being treated as an escort so what I do
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is I pay myself usually two to three
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times a month and how I figure out how
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much to pay myself is I basically take
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however much income my business has had
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in that month or in whatever period a
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sense I last paid myself and just to be
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safe I take about half of that and then
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I take that as my own payment I do that
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assuming I know what my overheads going
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to be
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I know whatever expenses I'm going to
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have coming up so I make sure that all
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of those are going to be covered and
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then I take about 50% and then from that
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I take a little portion out and put that
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away to pay for my taxes and then
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whatever is left after that is mine to
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spend on the really important things
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like food shelter clothing makeup shoes
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trips wine all the really good things
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that you're supposed to spend your money
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on
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so then opposite to that if you have
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elected to be treated as an S corp like
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I mentioned you have to pay yourself a
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reasonable salary which is going to
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depend on your industry and how long
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you've been in business and all of that
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which your accountant will hopefully
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help you figure out so you have to take
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that reasonable salary and that can be
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processed as payroll and then the taxes
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are going to come out of that reasonable
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salary and then anything else that you
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get paid you would call that a dividend
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and that wouldn't be subject to that
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self-employment tax so when you pay
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yourself as an S corp you're going to
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have these two classifications of when
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you take that money up you're going to
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have that payroll and then you're going
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to have the dividends versus just that
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one member distribution or member
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withdrawal if you're not taxed as an S
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corp so really that's it it can be a
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kind of daunting idea how do I pay
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myself and I'm the only owner of this
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business but really as long as you keep
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your business adequately capitalized and
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keep enough money in your business to
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run and grow your business it is it is
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actually a pretty simple process so
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hopefully for all those who had that
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question and you ask me that question I
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hope that answered it for you otherwise
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I hope this was helpful and I hope it
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helped all you single-member LLC you
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thank you so much for watching I'm Aiden
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Kramer and I'll see you next time
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