Am I misunderstanding MJ's "pay yourself first" statement?

[TreyAllDay]

Hey All,

I know the rates are different, depending on region - however I am having trouble understanding, which system is favoured in FastLane entrepreneurship, Payroll or Dividends?

With payroll, I am only being taxed once. However, on dividends I am being taxed on corporate profits and then again personally for the dividend. So clearly, Payroll is the way to go?

I do have an accountant I meet with once a month and plan to speak to about this when it is time, however am just curious for the time being.

 

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[D.Davis]

Hey All,

I know the rates are different, depending on region - however I am having trouble understanding, which system is favoured in FastLane entrepreneurship, Payroll or Dividends?

With payroll, I am only being taxed once. However, on dividends I am being taxed on corporate profits and then again personally for the dividend. So clearly, Payroll is the way to go?

I do have an accountant I meet with once a month and plan to speak to about this when it is time, however am just curious for the time being.

I understood it differently so I hope I'm correct or at least point you in the right direction. There are a lot of smart people on this forum so I'm sure someone will correct me if I'm wrong.
Anyway, I think that the Pay yourself first (entrepreneurship) method is preferred. Through Payroll and employment, on payday the government takes taxes and entitlements first, then your 401k/TSP/etc are deducted before you receive pay (last). However, in entrepreneurship, you're responsible for paying taxes but this doesn't come until the end of the year. In an LLC, profit distributions are taxed the same as all other taxable events. By paying yourself first, you have much more control of how your finances are distributed (i.e business growth and Fastlane development) versus the government and corporations deciding for you before you decide for yourself.

 

[TreyAllDay]

I understood it differently so I hope I'm correct or at least point you in the right direction. There are a lot of smart people on this forum so I'm sure someone will correct me if I'm wrong.
Anyway, I think that the Pay yourself first (entrepreneurship) method is preferred. Through Payroll and employment, on payday the government takes taxes and entitlements first, then your 401k/TSP/etc are deducted before you receive pay (last). However, in entrepreneurship, you're responsible for paying taxes but this doesn't come until the end of the year. In an LLC, profit distributions are taxed the same as all other taxable events. By paying yourself first, you have much more control of how your finances are distributed (i.e business growth and Fastlane development) versus the government and corporations deciding for you before you decide for yourself.

Ah okay this actually makes sense - so basically the idea is I can reinvest profits back into growing my busines asset rather than paying the government. So it's not literally pay yourself. I invest probably 50% of profits back into growth.

This makes sense, it is difficult getting advice sometimes from non fast lane entrepreneurs, which unfortunately a few of my mentors are, even my account- I always get advice to do payroll so I can build my personal credit and retirement contributions etc, when in fact i plan on a liquidation event.

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[D.Davis]

Ah okay this actually makes sense - so basically the idea is I can reinvest profits back into growing my busines asset rather than paying the government. So it's not literally pay yourself. I invest probably 50% of profits back into growth.

This makes sense, it is difficult getting advice sometimes from non fast lane entrepreneurs, which unfortunately a few of my mentors are, even my account- I always get advice to do payroll so I can build my personal credit and retirement contributions etc, when in fact i plan on a liquidation event.

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To be honest, it depends on a lot of factors on how you spend your profit distribution. Some people (or books such as or "Simple Numbers, Big Profits" and "Profit First") swear against reinvesting your profits as accelerated growth can slam you into a brick wall at 200 Mph. On the other hand, some people will puke if you tell them you spend your profits on other things than reinvestment. It all depends on YOU. Personally, I spend profit distributions on business debt and marketing/sales campaigns, invest in myself and burn the rest.

Good luck on the pursuit of your liquidation event!

 

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[MidwestLandlord]

It's all about control and having choices.

Whoever touches your money first wins.

You take money directly from your customers and then have direct control of how it is spent, distributed, etc. Instead of an employer and the government getting access to your money before you do.

So "pay yourself first" is YOU get to touch the money first, then pay everyone else later in the way that works best, and is legal, for your situation.

Just make sure to pay your estimated tax bills. Have a large amount owed at the end of the year without making estimated payments and you WILL get penalized.

 

[TreyAllDay]

To be honest, it depends on a lot of factors on how you spend your profit distribution. Some people (or books such as or "Simple Numbers, Big Profits" and "Profit First") swear against reinvesting your profits as accelerated growth can slam you into a brick wall at 200 Mph. On the other hand, some people will puke if you tell them you spend your profits on other things than reinvestment. It all depends on YOU. Personally, I spend profit distributions on business debt and marketing/sales campaigns, invest in myself and burn the rest.

Good luck on the pursuit of your liquidation event!

Interesting.. never heard the concept that growth reinvestment can cause a crash will have to look into this concept.

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[MokenaCleaner]

So pay yourself first, or no?
Was he saying that owning a business is a better than a job as how to pay yourself or taxwise?

 

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[MJ DeMarco]

When you own a business, you pay yourself first.

The customer gives you money. It goes into your bank account.

You get paid first.

For example, if you buy an INSIDERS Subscription, you pay me $119. It goes into my bank account.

I get paid first. I pay taxes later.

When you have a job, everyone else is paid first in the form of payroll taxes, fica taxes, state taxes -- everyone gets your money first ... you get what's left over.

That is what I meant.

 

[MokenaCleaner]

When you own a business, you pay yourself first.

The customer gives you money. It goes into your bank account.

You get paid first.

For example, if you buy an INSIDERS Subscription, you pay me $119. It goes into my bank account.

I get paid first. I pay taxes later.

When you have a job, everyone else is paid first in the form of payroll taxes, fica taxes, state taxes -- everyone gets your money first ... you get what's left over.

That is what I meant.

Thank you! My biz is a bit of a dirty job and listening to your book (again) while I work each day is pretty awesome.