Apr 1, 2025
If you’re a freelancer, side hustler, or creative entrepreneur who’s recently formed a C‑Corp—or you’re thinking about it—there’s one big question you’re probably wrestling with:
How exactly do I pay myself?
This is one of the most powerful (and misunderstood) aspects of running a C‑Corp. When structured properly, owner compensation can open the door to major tax savings and long-term financial growth. But without guidance, it can lead to double taxation, IRS scrutiny, and missed opportunities.
So let’s make it simple—with a real-world scenario you can learn from.
Meet Jordan: From Solo Freelancer to Smart C‑Corp Owner
Jordan is a 34-year-old digital marketing consultant who started freelancing in 2022. By 2024, his business had grown significantly, generating $140,000 in revenue. He loved the freedom and flexibility of working for himself—but as his income grew, so did his tax bill.
After chatting with a CPA and learning about the benefits of incorporation, Jordan formed a C‑Corp in early 2025. He turned to Lifestyle Services to help set everything up so he could focus on his clients instead of corporate paperwork.
His main question? “Now that I have a C‑Corp, what’s the smartest way to pay myself?”
Step 1: Setting a Reasonable Salary
First things first: Jordan became both an owner and an employee of his new corporation. As an employee, he needed to draw a W‑2 salary that the IRS would consider “reasonable” for his work.
With help from Lifestyle, Jordan looked at market data, industry averages, and his own role and experience. They determined $80,000/year was a fair and defendable salary for a digital marketing consultant with his credentials.
This salary:
Was fully deductible for the business
Included all standard payroll withholdings (income tax, Medicare, Social Security)
Helped Jordan stay compliant with IRS rules (which closely scrutinize C‑Corp compensation)
Lifestyle set him up on payroll, handled his withholdings, and issued pay stubs automatically.
Step 2: Issuing Strategic Dividends
After paying his salary, Jordan’s company still had earnings left over. Rather than taking it all out as additional salary (which would trigger more payroll taxes), Lifestyle helped him distribute $10,000 as dividends.
Dividends aren’t deductible for the corporation—but they are taxed at the lower capital gains rate for the recipient. Because Jordan had already taken a “reasonable salary,” this additional income was a smart way to boost his take-home pay.
With this balance of salary and dividends, Jordan kept his tax burden low and his compliance high.
Step 3: Leveraging Pre-Tax Perks
Jordan didn’t stop at salary and dividends. Lifestyle showed him how to take advantage of tax-free and tax-deferred benefits that many solo entrepreneurs overlook:
Health Insurance: Jordan’s C‑Corp paid for his health insurance premiums as a business expense.
Retirement Contributions: He set up a Solo 401(k), allowing both employee (up to $23,000) and employer (up to 25% of salary) contributions.
Accountable Plan: Jordan received reimbursements for home office costs, internet, client meals, and travel—without those reimbursements being considered taxable income.
These perks not only reduced his taxable income but also improved his long-term financial outlook.
By the end of the year, here’s how Jordan’s total compensation broke down:
W‑2 Salary: $80,000
Dividends: $10,000
Fringe Benefits + Reimbursements: ~$7,500
Total Value Received: $97,500+
With Lifestyle’s help, Jordan had a clear paper trail, reduced audit risk, and confidence that everything was set up properly.
Why It Worked: The Strategy Behind the Story
What made Jordan’s approach effective wasn’t just the mix of salary and dividends—it was the fact that it was strategic, compliant, and customized for his business.
Too often, small business owners either overpay themselves (and lose money to unnecessary taxes) or underpay (and risk IRS penalties).
Jordan found the sweet spot by:
Paying himself a reasonable, IRS-approved salary
Supplementing income with dividends
Taking full advantage of benefits and reimbursements
Partnering with Lifestyle Services to manage the process
This allowed him to build wealth, save on taxes, and eliminate guesswork.
Conclusion: Pay Yourself Well—And Smart
Owning a C‑Corp doesn’t have to mean getting buried in tax code and payroll confusion. In fact, it can be one of the most rewarding paths to financial freedom—if you set things up right from the start.
With the right strategy, you can:
✓ Optimize your income
✓ Reduce your taxes
✓ Build long-term wealth
At Lifestyle, we help C‑Corp owners like Jordan get their compensation right—without having to figure it all out themselves. From payroll and benefits to dividends and compliance, we handle the heavy lifting so you can focus on doing what you love.
Want to learn how to pay yourself the smart way?
Schedule a free consultation with Lifestyle and let’s build your best year yet.