Yes, you can and should pay yourself from a C corporation if you are actively working in the business, which requires setting up payroll for a reasonable salary (W-2). Shareholders can also receive dividends, but these are subject to double taxation. Unlike S corps, C corps do not require a "reasonable" salary to be paid for tax, but one must be paid if working.
Paying yourself from a C Corp
Owners of a C Corp are called shareholders. Let's say that Patty's catering company is a corporation, but she's the only shareholder. She must pay herself a salary based on her reasonable compensation. However, she can also receive a dividend, or a distribution, of her company's profits.
Don't Contribute Capital — Make Company Loans
This way, you'll receive taxable interest payments on the loan without double taxation because your corporation receives an offsetting interest expense deduction. You'll also collect tax-free principal payments on the loan.
An owner's draw is when business owners take money from company profits instead of a fixed paycheck. Taxes aren't withheld at the time of withdrawal, so you'll pay them when filing your return. This method is common for pass-through entities like sole proprietorships, partnerships, and LLCs.
Taking a small director's salary topped up with regular dividends from profits is the most tax-efficient way to pay yourself through a limited company. The most tax-efficient director's salary in 2025-26 is either £5,000, £6,500, or £12,570.
Every individual is entitled to a dividend allowance, which lets you receive a certain amount of dividends tax-free. For the 2024/25 tax year, this allowance is £500, reduced from £1,000 in the previous year.
Although double taxation is a downside, C corporations can still compensate owners through reasonable salaries that are deductible as business expenses. The IRS reviews whether compensation levels are appropriate based on the company's performance, size, industry, and consistency of payment.
For sole proprietors and LLCs, there's no set amount, but a good rule is to pay yourself a percentage of your net profit after expenses. Many owners start with 30% to 50%. Just make sure you leave enough in the business to cover taxes and operating costs.
The IRS 7-year rule primarily applies to keeping records for claiming a deduction for bad debts or losses from worthless securities, allowing a longer period to file for a credit or refund, but it's not a universal audit limit; it's often a recommended safe buffer for general record-keeping, with the standard IRS audit period usually being 3 years, extending to 6 years for substantial income omission (over 25%) or foreign income issues, and indefinitely for fraud.
Keep in mind that you cannot transfer money from your company account to your personal account for personal expenses that are not related to your business. If you do so, it could be considered a breach of your legal and tax obligations as a business owner.
On a $100,000 capital gain, you'll likely pay 15% for long-term gains, resulting in about $15,000 in federal tax (plus potential state tax), but it could be 0% or 20% depending on your total taxable income and filing status, while short-term gains are taxed as ordinary income (potentially 22-24%).
Using this formula, they divide their business income into two parts, with 60% designated as salary and 40% paid as shareholder distributions. Although many accountants use the 60/40 rule of thumb, it's not officially approved by the IRS.
How to pull money out of your corporation to pay yourself
Yes, $70,000 a year generally falls within the U.S. middle-class income range, but it depends heavily on location and household size, often sitting at the lower end of middle income, especially in high-cost areas where it might even feel lower, while in lower-cost areas it could offer a more comfortable middle-class lifestyle. The Pew Research Center defines middle class as two-thirds to double the national median household income, which puts $70k right around the median itself, making it squarely middle-class nationally but varying greatly by zip code.
C corporation owners often need to take cash out of the business to pay personal expenses or to shield excess cash from creditors. Paying dividends is one way to withdraw cash from the business, but it generally has some significant downsides. Fortunately, additional options may be available.
Because all the earnings stay “inside” the corporation, no dividends are paid to shareholders, and, therefore, there's no double taxation. Double taxation also isn't an issue when a C corporation's taxable income levels are low. You can often achieve this by paying reasonable salaries and shareholder employee bonuses.
C corp owners can pay themselves by way of salary and/or dividends.
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Many business expenses are 100% deductible, including advertising, employee wages, rent, supplies, and certain business meals like company parties or meals for the public, while personal deductions like student loan interest or charitable donations (depending on the type) can also be fully deductible for individuals. The key is that the expense must be "ordinary and necessary" for your trade or business or meet specific IRS criteria, often differentiating from the 50% rule for client meals.