Comment by apparent
15 days ago
Maybe it's just me, but it seems kind of weird to say you earned $8,200 in "profit" when there was no salary. Profit is typically the excess a business earns above its costs. For a solo founder, it can be a little tricky because the more you pay yourself in salary, the less you have in profit (and vice versa). But here, there was no salary. Maybe "earnings" or "income" would be a better term to use? Otherwise someone might (particularly for other years) think that the business earned $PROFIT dollars beyond all other costs, including presumably some sort of salary for all employees/contractors.
Yea. Perhaps a better metric to use would be Seller's Discretionary Earnings (SDE) which includes the owner's salary, benefits, and discretionary expenses, after adjusting for non-recurring, non-operating, and non-cash items. This metric is often used when one person wants to acquire another business.
For a solo company (which I assume is the situation here), it seems rather expected. Income minus expenses is the profit. No salary as expenses this year.
I think in a hand-wavey sense people understand that $PROFIT means $INCOME here.
>> For a solo founder, it can be a little tricky because the more you pay yourself in salary, the less you have in profit (and vice versa)
This isn't just the relatively small segment of "solo founder" almost all single-person and small amily businesses don't pay salaries like a corporate employee would recognize.
Assuming it’s an S-corp, Founders will try to get as much as possible in profit/dividends, as that is taxed better than income.
when your annual revenue is < $25K this is not typically a concern. Also that's true from the corporation's perspective but not always true because of the double taxation from the individual's side. I always find the timing flexibility (which effective tax year) far more valuable than the employment vs. investment income differentiation.
Dividends aren’t double taxed?
Unless I’m misunderstanding something.