You Started a Business… Now What?
- Michael Isabella
- Apr 22
- 4 min read
A practical guide to understanding how business owners get paid and taxed
By Michael Isabella, CPA, CMA
Managing Member, Isabella CPA & Advisory, LLC
There are millions of small businesses operating across the U.S., and every year more people take the leap into business ownership. The reasons are different for everyone — a passion, an opportunity, a desire for independence, or a way to support their family. I recently took that same leap myself in opening Isabella CPA & Advisory, LLC.
My vision is to provide advisory support that helps guide small business owners through the complex world of accounting, taxes, and regulatory requirements — allowing them to focus on what they do best.
Business owners quickly run into questions like:
How should my business be structured?
How do I pay myself?
How are my taxes calculated?
These are not simple questions — and the answers directly impact your profitability, cash flow, and long-term success. Without clear answers, many business owners end up making decisions that create confusion, missed opportunities, or unexpected tax consequences.
Step One: Understanding Your Entity Structure
One of the first decisions you make as a business owner is how your business is structured.
From a tax perspective, the IRS recognizes four primary structures:
Sole Proprietorship
Partnership
S Corporation
C Corporation
For many small businesses, the starting point is either a sole proprietorship (one owner) or a partnership (multiple owners).
At this point, many people ask:
“What about an LLC?”
An LLC (Limited Liability Company) is a legal structure, not a tax structure. It is designed to separate your personal liability from your business activities. From a tax standpoint:
A single-member LLC is treated as a sole proprietorship by default
A multi-member LLC is treated as a partnership by default
The Big Question: How Do I Pay Myself?
This is where many business owners get tripped up.
If you’ve worked as an employee, you’re used to receiving a paycheck — your employer withholds taxes, and everything feels straightforward.
But once you own the business, you are no longer a W-2 employee. As a sole proprietor or partner, you do not earn wages or a salary from your business. You are the business.
That means you do not receive a W-2 salary or run payroll for yourself. Instead, you withdraw money from the business through what are known as owner draws or distributions.
From a tax perspective, your liability is driven by the net earnings of the business, not the amount you withdraw. Additionally, in a partnership, your role as a partner (for example, active vs. limited) can impact how your income is taxed and the types of taxes that apply.
This is often one of the first major mindset shifts for new business owners transitioning from employee to owner.
Why This Isn’t as Simple as It Sounds
At a glance, this seems straightforward — but it quickly becomes more complicated.
Not every dollar coming into your bank account is considered revenue, and not every dollar going out is an expense.
Some transactions relate to:
Assets (like equipment or inventory)
Liabilities (like loans)
Equity (your investment or withdrawals)
Additionally, some expenses — like depreciation — don’t involve cash at all but still impact your taxable income.
This is where having accurate bookkeeping becomes critical. Without it, it’s very difficult to know what your true profit actually is.
The “Tax Surprise” Most Business Owners Experience
Many business owners don’t fully understand this until their first tax season.
They’ve taken money out of the business throughout the year but haven’t set anything aside for taxes.
Then they file their return — and are hit with a large tax bill and potential penalties. In certain cases, you can be penalized simply for not paying enough tax throughout the year, even if you pay the full amount when you file.
For many business owners, this comes as a surprise — especially after what felt like a successful year.
Where This Leaves You as a Business Owner
At this point, many business owners realize:
Their income isn’t as simple as a paycheck
Their taxes aren’t automatically handled
Their financials need to be accurate to make good decisions
And while it’s possible to navigate this on your own, it becomes increasingly complex as your business grows.
Running a business requires more than generating revenue — it requires understanding how that revenue translates into profit, taxes, and long-term sustainability.
When your financials are clear, you’re able to:
Make better decisions
Plan ahead for taxes
Improve your profitability
And most importantly, you can focus your time and energy on growing the business you set out to build.
Every business owner has a highest and best use of their time — and it’s rarely navigating accounting rules and tax regulations.
That belief is what led me to start Isabella CPA & Advisory, LLC. My goal is to work alongside small business owners as a trusted partner, helping bring clarity and structure to the financial side of the business so you can stay focused on what you do best.
Building a business is challenging enough — having confidence that your financials are under control should make that journey easier, not harder. Every business is different, and how these concepts apply can vary depending on your situation.
If you’d like to discuss your business or have questions, you can schedule a time to connect here:
This article is for informational purposes only and is not intended as tax or legal advice. Each business situation is unique, and you should consult with a qualified professional before making decisions.