Expert: Shirley McAllister, CPP, PHR - 10/20/2008

Question
I joined an existing owner in a cafe startup.  The business is registered under an existing company that he owns solely. We have not created a partnership on paper yet.  I am wondering if I can pay myself by a draw, and what that would mean for tax consequences. Or, if I choose to be paid as an employee, what tax implications does that have for me and the business?

Answer
Until you form a partnership you are not listed as a co owner and not eligible for a draw against the profits of the company.

You can be paid as an employee.

If you are a partner and you are paid in a draw you are responsible for your taxes, income tax, and fica/medicare taxes which you will pay as self employed on a quarterly basis.

If you are an employee you will have your taxes withheld and paid in by the company. The fica and medicare will be matched by the company.

Shirley