Hey there, Beauties! Today, we're breaking down the 60/40 rule, a fantastic tool that can help

S-Corporation owners like you navigate the tricky waters of determining a reasonable salary. Running your own business in the beauty industry can be exhilarating, but figuring out your income can be a bit of a puzzle. Let's make it simpler!

What Is the 60/40 Rule?

The 60/40 rule is a straightforward formula that allows S-Corporation owners to split their business income into two parts: 60% as a salary and 40% as shareholder distributions. This rule helps ensure that you're paying yourself fairly while staying in line with tax regulations. It's like finding that perfect shade of lipstick – just right!

Why Use the 60/40 Rule?

1. Tax Benefits: By dividing your income this way, you can potentially reduce your payroll taxes. Salary payments are subject to payroll taxes, while shareholder distributions are not. This means you may save money that can be reinvested in your business or used for personal savings.
2. Fair Compensation: Setting a reasonable salary is crucial for staying compliant with IRS guidelines. The 60/40 rule offers a structured approach to determine a fair and justifiable salary for your role in the business.

How to Apply the 60/40 Rule:

1. Calculate Your Total Business Income: Start by determining your S-Corporation's total income for the year. This includes all revenue generated by your beauty services, products, or any other sources of income.
2. Split the Income: Apply the 60/40 rule to divide your income. 60% will go towards your salary, while the remaining 40% will be designated as shareholder distributions.
3. Document Your Decision: It's essential to keep clear records of your decision to follow the 60/40 rule. This can include board meeting minutes or written resolutions to ensure IRS compliance.
4. Review Annually: As your business grows, make sure to reevaluate your salary and distribution split annually. Adjustments may be necessary to reflect changes in your business's performance and market conditions.

Final Thoughts

Beauties, the 60/40 rule is a handy tool for S-Corporation owners in the beauty industry, like many of you. It not only helps you save on taxes but also ensures you're fairly compensated for your hard work and dedication to your business.

Remember to consult with a qualified CPA, like us at TCB Accounting Solutions LLC, to ensure you're following the rule correctly and benefiting from its advantages.

With the 60/40 rule in your arsenal, you can focus on what you do best – making the world a more beautiful place, one client at a time. 💄✨

Stay fabulous, stay empowered, and keep rocking your beauty business! 💃🌺

For more financial tips and guidance tailored just for you, Schedule a consultation with us @ www.tcbaccountingsolutions.com/contact

This article is for informational purposes only and not legal or financial advice.