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💼 Business Owners: Thinking About Taking Money Out of Your Business?
Here’s What You Need to Know to Avoid Tax Trouble
As a business owner, you’ve earned the right to benefit from your company’s success—but how you take money out of the business matters. At Numeric Strategies, we regularly work with business owners to ensure funds are withdrawn in a tax-efficient and legally sound way.
Taking money out without the proper structure can lead to unexpected tax consequences, legal liability, and even damage to your business entity. Here’s what you should know.
🚨 Why It Matters: Improper Withdrawals Can Be Costly
The IRS—and the courts—pay close attention to how funds flow between business owners and their companies. Without clear documentation and intentional planning, transactions can be reclassified in ways that lead to:
🏛️ Intermingling Personal and Business Funds Is a Red Flag
One of the most common—and risky—mistakes we see is intermingling funds. This includes:
Even with good intentions, these behaviors can compromise your liability protection and trigger IRS scrutiny.
✅ How Money Can Be Taken Out (The Right Way)
Depending on your entity type (Sole Proprietorship, Partnership, S Corp, or C Corp), there are specific ways to legally and safely take money out:
➤ Sole Proprietors
You can draw money out freely—it’s already considered your income.
🚫 But don’t pay yourself “wages” or “dividends.”
➤ S Corporations & C Corporations
You may take money out through:
Failing to follow corporate formalities can result in loans being reclassified as dividends or wages, making them fully taxable.
➤ Partnerships
Funds may be withdrawn as:
🔁 Watch for These Triggers
You might be surprised at what the IRS could reclassify:
💡 Planning Ahead Can Save You Thousands
Whether you’re paying yourself, investing back into your company, or just covering expenses—it’s worth doing it right. At Numeric Strategies, we help you:
💬 Questions? Let’s Talk
If you’ve recently taken—or plan to take—money out of your business, we strongly encourage you to schedule a consultation with our team. A few proactive steps now can save you time, money, and stress down the road.
— The Numeric Strategies Team
ible
If you’re self-employed and use part of your home for business, you may be able to deduct expenses allocable to the business use. The home office deduction is available for homeowners and renters. To qualify for the deduction, you must use the space in your home regularly and exclusively as your principal place of business. Any personal use of the space will disqualify you from claiming a home office deduction.
You may choose one of two methods for calculating your deduction—the simplified method or the regular method. The simplified method allows you to claim $5 per square foot for a maximum of 300 square feet. This gives you a home office deduction of no more than $1,500. No other deductions are allowed. You are still permitted, however, to claim any mortgage interest or property taxes on Schedule A, if you itemize deductions.
The regular method requires a bit more recordkeeping. Generally, when using the regular method, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the square footage of the business use compared to the square footage of your entire home. This percentage is then used to calculate the percentage of deductible expenses such as mortgage interest, insurance, utilities, repairs and depreciation.
You may choose to use either the simplified method or the regular method for any taxable year. Once you choose, you cannot change your mind for that year. You can, however, use the simplified method one year and the regular method in another. If you use the simplified method for one year and use the regular method for any subsequent year, you must calculate the depreciation deduction for the subsequent year using the appropriate optional depreciation table.
During 2020, many employees were sheltering in place and forced to work from home. The current rules for deducting home office expenses do not apply to employees since deductions for employee business expenses have been suspended until 2026.
Underwithholding
Tax season is over, but if you had to pay an underpayment penalty, you may be able to get a refund for some of it. Because of the confusion about the Tax Cuts and Jobs Act, the IRS expanded the waiver for tax penalties for underpayment for this year only. In other years, you could avoid a penalty by withholding at least 90% of the tax due. This year, the IRS lowered that number to 85% and then again to 80% as the tax season wore on. I can help you file Form 843, Claim for Refund and Request for Abatement.
Important Tax Dates and Information
Tax Notes
If you’re opening a business or administering an estate, you may need to obtain an Employer Identification Number (EIN) by completing Form SS-4 or applying online at www.irs.gov.
Applying for an EIN is a free service offered by the IRS. Beware of websites that charge for this service. If you have any questions about the process, please let me know.
