How to Pay Yourself From Your LLC
The right way to get money out of your LLC depends on your tax setup. This guide breaks down every method — from owner’s draws to S-Corp salaries — and how to keep the IRS happy while maximizing your take-home pay.
Skip to Payment Methods ↓LLC Tax Basics: Why It Matters
The IRS doesn’t tax “LLCs” directly — it taxes how your LLC chooses to be treated for federal tax purposes. Understanding this classification is key to knowing *how* you can pay yourself legally and efficiently.
🧍 Single-Member LLC
Your profits flow directly to your personal tax return (Schedule C). You don’t take a salary — instead, you take owner’s draws.
👥 Multi-Member LLC
Each member gets a share of profits via a K-1. If you actively work in the business, those earnings are usually subject to self-employment tax.
💼 LLC Taxed as an S-Corp
You pay yourself a reasonable salary via payroll, then take the rest as distributions — which can reduce self-employment taxes.
3 Ways to Pay Yourself
1️⃣ Owner’s Draw
Transfer money from your business bank account to your personal one. Record it for bookkeeping; it’s not a deductible expense.
2️⃣ Salary via Payroll
If you’ve elected S-Corp status, pay yourself a W-2 salary. You’ll withhold and remit taxes like any employer.
3️⃣ Profit Distributions
After payroll and expenses, you can distribute leftover profits — these typically aren’t subject to payroll taxes.
Step-by-Step: Setting Up Owner Pay
- Open separate business and personal accounts.
- Decide your tax treatment (default LLC or elect S-Corp).
- Use draws if you’re a default LLC; run payroll if you’re an S-Corp.
- Keep records of all payments and withholdings.
- Save at least 25–30% of profits for taxes.
💡 MyBizNerd Tip: Use automatic transfers to set aside tax funds every month — consistency beats last-minute panic.
Self-Employment Tax: When It Applies
Single-member and active multi-member LLC owners typically owe self-employment tax (15.3%) on their net business income. However, electing S-Corp status allows you to split earnings between salary (subject to FICA) and profit distributions (not subject to FICA).
Estimated Taxes & Safe Harbor Rules
Unless you’re on payroll, you must pay quarterly estimated taxes. Use IRS Form 1040-ES and aim for the “safe harbor”: paying at least 100% of last year’s tax (110% if income exceeded $150K).
Health Insurance & S-Corp Owners
For S-Corp owners holding >2% of shares, health premiums must be reported as wages but can often be deducted on your personal return. Check IRS Pub 15-B and Form 7206 for details.
Common Mistakes to Avoid
- 🚫 Paying yourself a “salary” from a regular LLC without payroll setup.
- 🚫 Taking only distributions from an S-Corp — the IRS may reclassify them as wages.
- 🚫 Forgetting quarterly tax payments or mixing accounts.
FAQs
How much should I pay myself?
For S-Corps, your salary must be “reasonable” — benchmark against industry averages or consult a CPA. For default LLCs, base it on cash flow and planned reinvestments.
How often can I pay myself?
Draws or distributions can be taken at any time, but a consistent schedule simplifies taxes and budgeting.
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