How do we determine our salary without consistent income?

My husband and I started a consulting/contracting company last year under an LLC. We are co-owners and have no employees. Due to the nature of our business, we do not have a consistent income. We bill our clients when the next phase of the job is set to start. There can be weeks or months between payments as we have to wait for other contractors to complete parts of the job before we begin our next phase. Without knowing exactly when and how much money is coming in, we can't set salaries for ourselves. How do we pay taxes if we are not showing an income through payroll?

There are a couple of important parts to note. If you take money as draws versus payroll, then you may need to remit tax payments quarterly. Your tax accountant can help you determine if these are needed and the amounts.

As for establishing salaries, I would encourage you to do an overall budget for your business where you can forecast your income and expenses and be able to see what seems like a reasonable amount that the business can expend on owner salaries. Then you will need to monitor your cash flow and hopefully create a reserve during the good months to help during the slow months. It may be that you won't have a set amount each month--it may fluctuate in relationship to your company's income if you don't have reserves. The amount and frequency of payroll will determine the tax liability. Again, your personal accountant can help you with the budgeting process and establishing a reasonable amount the company should be able to expend on the owners' salaries.