How to Pay Yourself from Your LLC

One of the most common questions from new LLC owners: "How do I actually pay myself?" The answer depends on how your LLC is taxed and how many members it has. Here is a clear breakdown of your options.

Single-Member LLC (Default Tax Treatment)

A single-member LLC is a "disregarded entity" for tax purposes. The IRS does not distinguish between you and your LLC. This means you pay yourself through an owner's draw.

An owner's draw is simply transferring money from your business bank account to your personal account. There is no payroll, no withholding, and no special form. You report all LLC profit on Schedule C regardless of how much you actually withdraw.

Key point: the IRS taxes you on your LLC's entire net profit, not just what you draw. If your LLC earns $100,000 and you draw $60,000, you are taxed on $100,000.

Multi-Member LLC (Partnership Taxation)

Multi-member LLCs are taxed as partnerships by default. Members receive guaranteed payments (fixed amounts for services, similar to a salary but without payroll taxes being withheld) and/or profit distributions based on their ownership percentage.

Each member receives a Schedule K-1 showing their share of the LLC's income, deductions, and credits. Members pay self-employment tax on their share of the profit, regardless of actual distributions received.

S-Corp Elected LLC (Salary + Distributions)

If your LLC elects S-Corp taxation, you must pay yourself a reasonable salary through actual payroll. This means:

• Running payroll (using Gusto, ADP, or similar)
• Withholding federal and state income tax
• Paying employer and employee FICA taxes
• Filing quarterly payroll tax returns

After taking your salary, remaining profits can be distributed without self-employment tax. This is where the tax savings come from.

Practical Tips

• Keep separate accounts. Always have a dedicated business bank account. Commingling personal and business funds can jeopardize your liability protection.
• Document everything. Record every owner's draw or distribution with a note of the date and amount.
• Set aside taxes. Before drawing from your LLC, set aside 25–35% for taxes (income tax + self-employment tax). Transfer this to a separate savings account.
• Pay yourself regularly. Whether weekly, biweekly, or monthly, establish a regular cadence. This helps with budgeting and demonstrates to the IRS that your LLC is a real business.

What NOT to Do

• Do not use your business account for personal expenses. This "pierces the veil" and can expose your personal assets to business liabilities.
• Do not skip quarterly estimated taxes. If you take draws without setting aside taxes, you will owe penalties.
• Do not set your S-Corp salary unreasonably low. The IRS audits S-Corps that pay owner-employees $30K while distributing $150K in "profits."

Need help structuring your LLC compensation? Ask Sedes about the best way to pay yourself based on your LLC's structure and income.