How you pay yourself from an LLC depends on how the LLC is taxed, not on the LLC itself. A single-member LLC is taxed like a sole proprietorship, so you take an owner’s draw: a transfer from the business account to your personal one, with no payroll. Partners in a multi-member LLC take guaranteed payments and distributions. Only an LLC that has elected S-corp treatment pays its owner a salary.
Single-member LLC: the owner’s draw
By default the IRS disregards a one-owner LLC: its income and expenses go on your own Schedule C, as if the LLC weren’t there. You can’t be your own employee, so there is no salary and no W-2. Paying yourself is a transfer from the business account to your personal account, recorded in your books as an owner’s draw. It is not a business expense and is never deducted.
Why the draw doesn’t change your tax
Tax follows profit, not transfers. If the LLC makes $80,000 of profit, you owe income tax on it and about $11,300 of self-employment tax, whether you draw $20,000 or $80,000 or leave everything in the business account. Leaving money in the business doesn’t defer the tax, and drawing more doesn’t add any. What draws do change is how much cash is left to pay that tax, which is why the set-aside comes first.
Multi-member LLC: guaranteed payments
An LLC with two or more members is taxed as a partnership by default. Partners aren’t employees either. A member who works in the business can receive guaranteed payments, fixed amounts for their services agreed regardless of profit, which the partnership deducts and the partner reports with self-employment tax. Remaining profit is split according to the operating agreement and each member’s share arrives on a Schedule K-1. Cash taken beyond that is a distribution.
LLC taxed as an S-corp: salary
Once an LLC elects S-corp treatment, an owner who works in the business must take a reasonable salary through payroll, with withholding and a W-2, before taking distributions. That split is where the S-corp saving comes from, and why the salary figure is checked. The reasonable salary guide covers how to set it.
How much, and how often
- Set aside tax first. Move a share of every payment for income and self-employment tax before deciding what you can draw.
- Keep a buffer in the business account for a slow month and upcoming bills.
- Draw on a schedule: a fixed amount every two weeks or month feels like a paycheck and is easier to budget than ad hoc transfers.
- Never pay personal bills from the business account. Draw the money first, then pay. Mixing the two weakens the LLC’s liability protection and muddles the books.
Our 1099 tax calculator gives the share of each payment to set aside, and budgeting on irregular income covers turning uneven profit into a steady draw.
Questions, answered
How do I pay myself from a single-member LLC?
With an owner’s draw: a transfer from the business account to your personal account. A single-member LLC taxed the default way doesn’t run payroll for its owner, and the draw is not a deductible expense.
Is an owner’s draw taxed?
Not separately. A single-member LLC owner pays income tax and self-employment tax on the business’s profit, however much of it they draw.
Can an LLC owner be paid a salary?
Only if the LLC is taxed as a corporation, usually by electing S-corp status. Then the owner receives a reasonable salary through payroll plus distributions.
What is a guaranteed payment?
A fixed payment a partnership, including a multi-member LLC, makes to a partner for services, regardless of profit. The partnership deducts it and the partner pays self-employment tax on it.
Sources
- Single member limited liability companies — IRS. Disregarded entities and where their income is reported.
- Publication 541, Partnerships — IRS. Guaranteed payments and distributive shares.
- Paying yourself — IRS. Officers’ wages, partner payments and distributions.
- Self-employment tax — IRS. The 15.3% rate on 92.35% of profit.
