+5 votes
by (430 points)
Me and my husband have been trying to figure out a better way to budget for our irregular/ unusual income. We own a business and take a low monthly salary to in turn, get a larger end of year “bonus/ K1 distribution” which we were told by our accountant is taxed at a lower rate. But that means we draw on our savings because the “low salary” isn’t quite enough to live on - We are thinking about putting a lump sum in a savings account and drawing on that monthly almost like a pay check. Has anyone done something similar? It’s a new year and we need to figure out a better way to manage our money that feels more cut and dry.  
Me and my husband have been trying to figure out a better way to budget for our irregular/ unusual i

4 Answers

0 votes
by (2.3k points)
The “K-1 distribution” is actually an owner’s draw, and it doesn’t have to be done only at year end so long as you don’t take more than the equity you have in the company throughout the year. The lower rate comes from not paying payroll taxes on that money. (I’m an accountant  ) But yes, putting that money in a savings account and then dividing it by 12 (or 24, depending on how you want to take a “paycheck”) is a good idea!  
by (430 points)
@vitellus3 awesome! Thank you for that clarification and chiming in on if that idea is a good idea or not! Helpful!  
0 votes
by (6.8k points)
Put the lump sum in a high-yield savings, and then the interest you earn on it throughout the year will give you a little “Christmas bonus” at the end of the year  
by (430 points)
@spencer8887 awesome. Thank you!  
0 votes
by (390 points)
I’m pretty sure you can take an owners draw at any time. Not just year end. determine what that amount will be and give yourself a set monthly draw. And of course consult with your cpa re tax payments
0 votes
by (1.8k points)
If you’re structured as an LLC treated as an S Corp, which we’ve found highly preferable for tax purposes, then you can take periodic distributions in addition to your low monthly salary. Instead of drawing down savings. This is what we do and it’s also beneficial if you ever are going to take on debt like for a mortgage, since the lender will want to see you have ample income and drawing down savings to cover monthly expenses scares lenders . Disbursements make your business appear healthier.  
by (430 points)
@pamella2 got it. We have a mortgage but we are planning on moving in the next two years, and will need a new mortgage so good info. Thank you!  
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