So, I love this question because it’s one of those technical questions that you have when you’re just starting your business and the answer is simple, but no one actually tells you that you need to pay yourself in a certain way. 

When you’re determining how to pay yourself as a consultant, you need to first determine your tax classification as a business (which is exactly why, after reading this blog, you’ll need to do your Google’s and talk to a tax professional as well!) and also how your business is structured. 

If you’re a sole proprietor (which means you have not filed paperwork to elect for a different tax classification) technically, you and your business are one in the same. So, when you get paid for a consulting contract, you will deposit the fund into your business bank account and to pay yourself you would take an owner’s draw. It’s important that you note that any funds you receive for your business need to be deposited into your business bank account first and then withdrawn or transferred to your personal bank account which is considered an owner’s draw. 

Now if you have a tax classification of an S-Corp, things are a bit different. To file as an S-Corp, you’re required to put yourself on payroll as an employee of your business. So getting paid with an S-Corp tax classification requires you to run your own payroll to pay yourself. 

This means that you cannot just transfer money from your business account to your personal account, but that you need to have your own payroll system. That way the payroll system is debiting from your business account, is paying taxes to the government, and then it is depositing the remaining balance into your personal account.

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