Before you can pay yourself, you should figure out two things: 1) How much you need to pay yourself and 2) how much your business will need each month to operate.

Disclaimer: I'm not an accountant and this isn't tax advice. It is information that will help you ask your account questions that will help you navigate this weird how-do-I-pay-myself mess.

Step 1. Figure out how much you need to earn to cover your personal expenses.  

You want to have three monthly income numbers that answer the following questions:

1. How much do you need to cover your essential living expenses?
2. How much do you need so that you can have extra to save?
3. How much do you need so that you can have extra money to spend?

Now you have a sliding scale of what you need to earn. These are your income goals and your three different income scenarios. We think having three numbers is helpful because you don't always earn the same amount each month as a freelancer, so it's good to know what your minimum required income for survival is. These income numbers are before any income taxes you would owe. Which brings us to our next step.

Step 2. Add in taxes.

The money you need to earn didn't include the amount of income taxes you would need to pay. So we have work backwards and do a little bit of math to figure out how much you'll owe in taxes. So we are adding taxes into your income number, which means its going to go up. Here are two ways to add in taxes:

1. Ask your accountant. Make an appointment with your accountant and ask them to help you with this calculation. They'll know best since they know your exact, unique tax situation.
2. Reverse engineer how much you owe in taxes. After you figure out how much you want to pay yourself (or can pay yourself) look up your Federal AND state tax brackets. Here is one for the Federal and here is one for the state. You might have to play around with the numbers to make sure the amount you earn AFTER taxes will be enough.
3. Please note: Employer Payroll Taxes (Only applicable to entities like LLC's or Corps running payroll). If you're going to run payroll because you have an LLC, Corp or other entity set up, you'll need to make sure to factor in employer payroll costs. An employer who pays employees (if you're the business owner, you can be both) via payroll are responsible for paying taxes, just like how an employee pays taxes. Here's an awesome calculator that will help you determine how much taxes you'll need to pay for each employee. 

Step 3. Figure out how much your monthly business expenses are:

1. How much does the business need to earn in order to operate each month? Make sure to consider annual expenses and divide them by 12 to get a monthly number. Also, don't forget to Include the amount you need to pay yourself and payroll taxes.
2. Other expenses. What about expenses beyond your overhead that would allow you to grow the business, like the amount you would like to spend on marketing and outsourcing? What's the monthly number? You can include this, too, but you might want to see what your expenses look like without them too. By doing that you can look at different scenarios and have a sliding scale for your business revenue goals. (Revenue is just a fancy word for the total amount of money your business makes by selling a product or service). 

Now that you know how much you need to earn at a minimum to operate your business and pay yourself, the next step is to take a step back and assess the goal that is ahead of you.  Is it realistic that you can sell a product and/or service and reach those revenue goals? Yes? Great! Moving on.

Step 4. Open up a business checking account.

Go open up a separate business bank account. It doesn't have to be a formal business account, it could just be a personal account, just keep it separate from your personal checking account.

Step 5. Make the goals a reality.

Next, go forth and work your ass off. Put the money you earn from freelancing into your business checking account. 

So now you're here:

1. not making any money and the current iteration of your business can't survive. You have to hang on or pivot or a combination of the two. If you have a situation where you can afford to keep working for yourself, do it. Maybe you aren't and you need to find part-time work or full-time work to save up a giant cash pile to try it again;
2. you're making money, but not enough to cover your business expenses. See your options from point 1, above;
3. any other situation where you are earning, but not enough, See your options from point 1, above; or
4. you're making enough money to cover your business expenses and you can afford to/you don't have a choice and you have to start paying yourself.

Chances are regardless of where you're at, unless you have other income, savings or someone else paying for your personal expenses, you'll need to "pay yourself" from your business. 

Step 6. Paying yourself.

STEP 6A. The logistics to paying yourself if you're a freelancer and/or sole proprietorship.

• Set up a business checking account and set up a tax savings account.It's tidy if you set up a business checking account even if you don't formally have a business entity. 
• Simply, transfer money to your personal checking account.Really, it's that simple. Transfer your paycheck from your business account to your personal account.
• Save for taxes. Remember how you did that tax calculation? Now it's time to make sure you transfer the amount you need to save for taxes into your tax savings account. Again, we recommend that you  talk to your account about 1) whether or not you're saving enough for taxes and 2) how and when you'll pay your taxes because everyone has a unique tax situation.

STEP 6B.  Paying yourself from your Corp, LLC or other entity.

• Talk to Your Accountant. Before you set up payroll, talk to your accountant and make sure the entity you formed and the way you formed allows you to set up a payroll. 
• Set up payroll. You can ask if your accountant can set up payroll for you. Or you can set it up yourself through a payroll company like Gusto (our favorite). If you're using Quickbooks accounting software, you can run payroll through them. There are also some other companies like ADP and Paychex, but they're pretty old school.
• The payroll service company will walk you through the steps of setting up payroll because each state will have different rules and requirements. You'll need to file payroll taxes as well. Make sure either your accountant or the payroll company you choose can help you do this. Another reason we love Gusto because they do all that stuff for us.

Alright, guys. We know this was lengthy, but we wanted to make sure to actually give you some useful shit that you can use.

Let us know if this was helpful or if you'd like us to write a post going more in depth with any of the above steps and/or concepts.