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You've built your consulting practice. Clients are coming in. The work is flowing.

Then comes the moment every independent consultant dreads: how do I actually pay myself?

This is about structuring your compensation so you're not leaving money on the table or violating tax laws.

Your legal business structure is a box to check during setup, because it determines how you pay yourself and protects you from possible liabilities that come with running a business.

Get this wrong, and you'll overpay taxes or expose yourself to lawsuits.

Most independent consultants start here, but it’s important to move away from this once your business starts taking roots. As a sole proprietor, you and your business are one legal entity.

In this scenario, paying yourself is simple. You take an owner's draw by transferring money from your business account to your personal account.

No formal payroll. No W-2. Simple setup, no paperwork.

The catch is that you pay taxes on all business profits, whether you take the money out or not. It also means you're personally liable for every business debt and lawsuit. And you'll pay self-employment taxes on all profits.

An LLC creates legal separation between you and your business, which means your personal assets are protected from business liabilities.

By default, single-member LLCs are taxed like sole proprietorships: you still take an owner's draw and pay self-employment taxes on all profits.

Things get more interesting when you elect to have your LLC taxed as an S-Corporation because new compensation strategies open up.

First, let’s clear up the misconception that S-Corp is a business structure – it's not; it's a tax classification you elect for your LLC or corporation. This means you need to set up an LLC first, then sign up for the S-Corp tax election.

With an S-Corp, you must pay yourself a reasonable salary through formal payroll. Then you take additional profit as distributions, which aren't subject to self-employment tax.

Tax savings happen here.

The trade-off is payroll processing, quarterly filings, and strict compliance requirements. The tax code is written to reward people for starting and growing businesses. Taking an S-Corp election is simply operating within the rules Congress built for this purpose.

Here’s why the split works.

Sole proprietors, partners, and owners of LLCs pay the full self-employment tax on every dollar of profit. S-Corp owners only pay that tax on the salary portion of their pay.

The distribution portion skips self-employment tax entirely. It’s the specific incentive Congress built in to encourage people to formalize and grow a business instead of staying a freelancer indefinitely.

The guardrail that keeps this legitimate is the “reasonable salary” requirement. The IRS doesn’t care how you label your paperwork; it cares whether your W-2 salary reflects what someone with your skills and experience would actually be paid for work.

Underpay yourself on salary to route more money through distributions, and the IRS can reclassify those distributions as wages, plus back payroll taxes, penalties, and interest.

Pay yourself a defensible, market-rate salary first, and everything you take as a distribution on top of it is exactly what the tax code intends for you to have.

Depending on your business structure, you have three options to pay yourself.

(And this is where you’ll see why LLC with an S-Corp is the best option.)

The simplest method: transfer money from your business account to your personal account when needed. This is available to sole proprietors and LLCs taxed as sole proprietorships or partnerships.

The draw doesn't change your tax bill. You pay taxes on all business profit regardless of what you withdraw.

The key is discipline. Set a consistent draw schedule (weekly, biweekly, or monthly) to keep you from making emotional money decisions when cash is tight or plentiful.

If you elected an S-Corp status, you must pay yourself a reasonable salary through payroll. No exceptions.

But what exactly is "reasonable"? What someone with your skills and experience would earn in a similar role.

The IRS watches this closely. Don't lowball your salary to dodge payroll taxes.

Remember that you'll pay income tax and FICA (Social Security and Medicare) on your salary – and your business pays the employer portion of FICA too.

The catch is that you need a payroll software or service, adding cost and complexity. But for S-Corps, it's mandatory.

After you've paid yourself a reasonable salary, S-Corp owners can take additional profit as distributions. These distributions are only subject to income tax – and it’s the reason why people elect S-Corp status.

If we ran some numbers...

Let’s say you earn $150,000 in profit.

You pay yourself a $90,000 salary (reasonable for your role) and take $60,000 in distributions.

You save roughly 15.3% in self-employment tax on that $60,000.

That's over $9,000 back in your pocket every year.

If you’ve elected S-Corp status and have kids, there’s a newer stacking opportunity worth knowing about: Trump Accounts (originally called Invest America accounts, but legally, it’s called a Trump Account).

Trump Accounts are a new type of custodial created for any child under 18 with a Social Security number – you can open one for your kid regardless of when they were born.

If your kid is born between January 1, 2025 and December 31, 2028, they qualify for a one-time $1,000 seed deposit from the federal government once you complete the required election.

Beyond that seed money, anyone can contribute to a child’s Trump Account, up to $5,000 per year in after-tax dollars. 

But here’s where it gets interesting for S-Corp owners: your business can contribute up to $2,500 per year to the Trump Account of an employee's dependent, and that contribution is excluded from the employee’s and the business taxable income. It counts toward the $5,000 annual limit, effectively covering half of the yearly cap.

Since you’re also the employee on a payroll, you can personally contribute the remaining $2,500 post-tax to hit the annual max. This works for every kid you have. 

Talk to your CPA before setting this up. The contribution rules are brand new, and the IRS is still finalizing guidance on how employer contribution programs should be documented.

When I finished my research about this, I went ahead and set up one for my kid – I did it myself, and it was easier than I expected.

There’s an app for it with a genuinely good UI. The whole thing took just a few minutes, and it doesn’t feel like some clunky government portal. There were also logos from companies who took part in the initiative.

My negative feedback:

But honestly, the setup itself was faster to set up than a Robinhood account – which makes me wonder: if account setup can be this easy, why can’t filing taxes work the same way?

After you've chosen your structure and payment method, you need a system:

You don't have to figure this out alone if you’re still confused.

Many consultants and fractionals find it helpful to hire a CPA who specializes in small businesses and independent consultants. It can be pricey upfront, but it could save you time, money, and stress.

They'll help you choose the right business structure, optimize your tax strategy, and keep you compliant.

How you pay yourself in year one won't look the same in year five. Your tax situation also gets more complex as revenue grows.

You might start as a sole proprietor, transition to an LLC, then elect S-Corp status as profit increases.

The goal is to build a compensation system that's legally compliant, tax-efficient, and sustainable as your practice grows.

Pay yourself consistently. Set aside tax money. Reinvest strategically.

Work with professionals who understand independent consulting.

That's how you turn a consulting practice into a financially stable career.

Organizations commit to new priorities all the time. But every new initiative requires something finite: people, skills, and capacity.

When those realities aren’t part of the decision, even the right strategy can become impossible to execute.

ProSymmetry created the Execution Capacity Assessment to help leaders and advisors ask seven questions that expose the gap between what an organization wants to accomplish and what its people can actually deliver.

👉  Get the Execution Capacity Assessment

The team and I took a field trip to Panama last September.

We went to meet our LATAM-based consultants IRL and put eyes on the market. There were a couple hypotheses I wanted to test:  
 
1️⃣ Is the talent pool there deep and high-quality enough to grow our LATAM commercialization expert business?  
2️⃣ Can we position the value they provide our US clients simple and clear?
3️⃣ Does our existing team have the desire and momentum to put the work in to grow?  
 
The answers were resounding.  
 
YES.  
 
YES.  
 
DOUBLE YES.  
 
We’ve done a successful pilot with KRS LATAM before — and we’re ready to improve it further with our learnings and insights from the trip.

👉 Read more about product and commercialization talent in LATAM.