How Do I Pay Myself From My LLC

Types of LLCs

Before deciding how to pay yourself, it’s important to understand the type of LLC you’ve set up.

While all LLCs offer personal liability protection and flexible tax options, how you compensate yourself depends on how your LLC is structured—whether a single-member, multi-member, or elected to be taxed as a corporation.

1. Single-Member LLC

A single-member LLC has one owner. It is treated as a "disregarded entity" for tax purposes, meaning the LLC's profits are reported directly on the owner's personal tax return. This structure is simple and allows the owner to take an "owner's draw" directly from the business account.

2. Multi-Member LLC

Multi-member LLCs have two or more owners, commonly referred to as members. The LLC's profits and losses are typically divided among members based on their ownership shares, as outlined in the operating agreement. Depending on the agreement, members can pay themselves through owner’s draw or guaranteed payments.

3. Corporate LLC

Some LLCs elect to be taxed as corporations or S corporations using the "Entity Classification Election." Corporate LLC owners are treated like business employees and paid a salary, subject to payroll taxes.

How to Pay Yourself From Your LLC

Paying Yourself Through a Single-Member LLC

If you are the sole owner of a single-member LLC, paying yourself is straightforward. You take an owner’s draw from the business profits. Here’s how it works:

• Transfer money from the business bank account to your personal bank account.

• You can write yourself a check or use an online transfer.

• Keep track of all owner’s draws for proper bookkeeping and tax reporting.

Paying Yourself Through a Multi-Member LLC

For multi-member LLCs, the process is more structured due to multiple owners. Standard payment methods include:

• Owner’s Draws: Members can withdraw profits as outlined in the operating agreement. Distributions are typically based on ownership percentages or pre-agreed terms.

• Guaranteed Payments: Fixed payments made to members regardless of profitability. These act like salaries and are taxed as ordinary income. They provide consistent compensation for active partners.

Paying Yourself Through a Corporate LLC

If your LLC is taxed as an S corporation or C corporation, you must pay yourself a reasonable salary as an employee.

• The IRS requires this salary to reflect what someone in a similar role would earn.

• Payroll taxes, such as Social Security and Medicare, apply to this salary.

• Once a reasonable salary is established, you may also take distributions from remaining profits, which are not subject to payroll taxes.

What Is an Owner’s Draw?

An owner's draw is a payment method in which business owners withdraw funds from the LLC's profits for personal use.

These payments are not considered salary and are not subject to income tax withholding. However, they are subject to self-employment taxes when filing personal tax returns.

Key Features of an Owner’s Draw:

• Flexibility to take draws as needed or at regular intervals.

• Amounts can vary based on the business’s cash flow or profitability.

• Available for sole proprietorships, partnerships, and LLCs.

Pro tip: While owner’s draws offer flexibility, excessive withdrawals can limit your ability to reinvest in the business or cover operating expenses.

Maintaining a healthy balance between personal compensation and business cash flow is essential for long-term financial stability.

What Are Guaranteed Payments?

Guaranteed payments are fixed payments made to members in a multi-member LLC for their services or capital contributions. Think of them as a priority distribution or "salary equivalent," ensuring that members are compensated regardless of the LLC’s profitability.

Key Features of Guaranteed Payments:

• Taxed as personal income to the recipient.

• Deductible as a business expense for the LLC.

• Beneficial for partners who actively contribute to running the business or provide upfront capital.

Guaranteed payments can help provide consistent compensation, particularly for members contributing labor or funding, making them valuable during the early stages of the business or when profits fluctuate.

How Much Should You Pay Yourself From Your LLC?

Determining how much to pay yourself as an LLC owner requires balance. You must ensure your compensation aligns with your business’s financial health, industry standards, and IRS compliance.

The goal is to pay yourself reasonable compensation while allowing your LLC to retain the necessary cash flow for operational needs and future growth.

Factors to Consider:

• Market Research: Research average salaries or compensation for similar roles in your industry. For example, use data from professional associations, government statistics, or online salary tools.

• LLC’s Profits: Take stock of your LLC’s annual profits and cash flow. Your payment should be sustainable for your business, especially as you plan for growth or unforeseen expenses.

• Taxes: Understand how your payment method is taxed to avoid surprises:

  • Owner’s draws are taxed later through self-employment taxes.

  • Guaranteed payments are taxed as personal income.

  • Salaries in corporate LLCs are subject to payroll taxes and federal income tax withholding.

If in doubt, consult a financial advisor or CPA to ensure compliance with IRS guidelines and to optimize your compensation plan.

Important Tips for Managing Payments:

• Keep Business and Personal Finances Separate: Always use a dedicated business bank account for your LLC’s income and expenses. This ensures precise financial tracking and maintains your LLC’s liability protection.

• Track Owner Compensation: Maintain detailed records of all owner’s draws, guaranteed payments, or salaries for accurate tax filing and financial reporting.

• Plan for Estimated Taxes: If taxes aren’t withheld from your payments, set aside funds for quarterly estimated tax payments.

LLCs Don’t Have to Be Confusing

Paying yourself from your LLC isn’t just about moving money—it’s about aligning compensation with cash flow, tax obligations, and your business’s long-term needs.

For single-member LLC owners, owner’s draws are the simplest approach. Multi-member LLCs offer additional payment options like guaranteed payments, while corporate LLC owners need to focus on a reasonable salary in line with IRS guidelines.

By understanding your LLC’s type, payment options, and financial responsibilities, you can create a seamless, compliant system that works for you and your business.

If you’re ready to streamline your LLC’s finances, consider collaborating with bookkeeping or financial management services that cater to small business owners. Taking these steps ensures you're paying yourself and adequately setting your LLC up for long-term success.