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How do I pay myself?

I'm not sure how to explain this, so I'll try my best.
I'm self-employed.
I do freelance work for a website.
I don't know how to pay myself though.
I mean I don't know how to make the journal entries for my accounting books.
So far my books just look like a fancy checkbook.

I was told by my tax person to have a separate account for my freelance payments and a personal bank account.
I pay myself out of my freelance payment bank account to my personal bank account once a month, sometimes(I lost work after COVID and couldn't pay myself some months).

I don't know how to classify these listings when making journal entries though.
The money I make freelancing is income.
The money I pay myself is categorized as dividends.

Also, I have no expenses.
Should I put my earnings in retained earnings?
And then take some out of retained earnings into dividends?

Should I have separate books for each bank account?
I'm using GnuCash for bookkeeping.

If I need to give more info, please let me know.
I'm kind of new to accounting, so I apologize if this is a dumb/weird problem.

Answers

Topic Expert
Jake Feldman
Title: Managing Director
Company: Global TaxFin Advisory Group LLC
(Managing Director, Global TaxFin Advisory Group LLC) |

Sorry for slow reply, since I don't look frequently here. If you are self employed and have not established a separate corporation to conduct your business, then your income "flows through" or passes through into your personal tax return. There are no retained earnings or dividends to speak of because you don't really have a separate company even with a separate bank account. So, you will just report the income you made on Form 1040 schedule C.

Many self employed establish an LLC limited liability company to conduct their business in order to "limit" personal liability. The tax forms are more complicated but the same pass through concept applies even though there are now a separate set of books for the company.

Consultants like yourself should generally not establish a corporation which would subject income to double taxation, first at the corporation and then on your personal return from dividends.

Anonymous
(President & CFO) |

You can always establish a C-Corp and elect to be treated as a Sub-S Entity, thus getting "full" personal liability and pass through tax treatment.

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