Can You Really Pay Yourself from an LLC? Yes – But Don’t Make This Mistake + FAQs

Lana Dolyna, EA, CTC

Share this post

Yes! You can pay yourself from your LLC, but the way you do it depends on your LLC’s structure and tax setup.

In fact, paying yourself is essential to enjoy your hard-earned profits while staying on the right side of tax laws. This article will immediately answer how to pay yourself from an LLC for every scenario – whether you’re a solo LLC owner, one of multiple LLC partners, or you’ve elected S-Corp status. We’ll break down all LLC structures (single-member, multi-member, S-corp election, even C-corp taxation) and show you exactly how to take money out of your business legally and smartly.

In a nutshell, here’s how to pay yourself from an LLC based on its type:

Single-Member LLC (default sole proprietor) – Take an owner’s draw from the profits (no formal payroll needed).
Multi-Member LLC (default partnership) – Take profit distributions (and/or guaranteed payments for services) according to your ownership share (members aren’t on a W-2 payroll).
LLC with S-Corp Election – Pay yourself a salary through payroll (W-2 wages) plus take additional profit as owner distributions.
LLC with C-Corp Taxation – Pay yourself a salary as an employee (and possibly dividends as a shareholder from after-tax profits).

Single-Member LLC: How to Pay Yourself (Owner’s Draw Basics)

Single-member LLCs are the simplest LLC structure – just one owner (you). How do you pay yourself when you’re the only member? The answer: through an owner’s draw. As a single-member LLC owner, you do not receive a formal salary or W-2 from the business. Instead, you can draw on the LLC’s profits whenever you need personal income.

What is an Owner’s Draw? It’s a simple withdrawal of funds from your business’s bank account to your personal account. Think of it as paying yourself by transferring money that your business has earned, since you are entitled to the profits as the sole owner. It’s not a business expense and not like a paycheck with taxes withheld – it’s just taking out your own money from the business.

Key points for Single-Member LLC draws:

No Payroll Needed: You don’t put yourself on payroll or issue yourself a paycheck. The IRS considers single-member LLCs as “disregarded entities” by default (meaning for tax purposes, the LLC is not separate from you). So, any profit the LLC earns is your income. You simply transfer money to yourself as needed.
Unlimited Withdrawals: There’s no set frequency or amount for draws. You can take money out regularly (weekly, monthly) or sporadically. You could write yourself a check from the LLC or do an online transfer to your personal account.
Taxes on Profits, Not on Draws: Here’s a crucial piece – the amount you draw is not directly taxed at the time of withdrawal. Instead, you pay taxes on your LLC’s profits, regardless of how much you actually take out. For example, if your single-member LLC earned $50,000 in profit this year, you will pay income tax (and self-employment tax) on that $50,000, even if you only drew $30,000 for yourself and left $20,000 in the business. The draw itself isn’t taxed separately; it’s essentially already your money as far as the IRS is concerned.
Self-Employment Tax: As a sole owner, you’re considered self-employed. All the LLC’s net profit is subject to self-employment taxes (Social Security and Medicare taxes, totaling roughly 15.3%). These are usually paid when you file your personal tax return (Schedule SE) or through quarterly estimated tax payments.
Keep Accounts Separate: Always transfer money to yourself formally (via check or bank transfer). Don’t just pay personal bills directly from the LLC account. By keeping a clear record of draws, you maintain the legal separation between your LLC and personal finances (important for preserving your liability protection).

How to Take an Owner’s Draw (Step-by-Step)

Check Your LLC’s Funds: Determine how much profit the business has (after covering expenses and setting aside cash for upcoming costs). Avoid draining the account completely.
Decide on an Amount: Maybe you want a set “salary” equivalent each month, or just an as-needed amount. It’s up to you – there’s no required amount.
Write a Check or Transfer Funds: Make the payment from the LLC’s business bank account to your personal bank account. Label the transaction as “Owner’s Draw” in your accounting records.
Record the Draw: Update your bookkeeping. This reduces your owner’s equity (your stake in the business) but it’s not an expense. It will show up on the balance sheet, not the profit-and-loss statement.
Save for Taxes: Since no taxes are withheld on draws, be sure to set aside money for income tax and self-employment tax. Plan to send quarterly estimated tax payments to the IRS and state to avoid a big year-end tax bill or penalties.

Example: Jane is the sole owner of a consulting LLC. Her business earned $80,000 profit this year. Throughout the year, she transfers $5,000 per month to her personal account as an owner’s draw (total $60,000). Come tax time, Jane will report $80,000 of business income on her personal tax return (Schedule C) and pay income tax and self-employment tax on the full $80k. The $60k she withdrew isn’t taxed again when she took it – it was taxed as part of the $80k profit. The remaining $20k she left in the business is still her profit (increasing her equity) and will be taxed as well, even though she didn’t spend it personally.

Bottom line for single-member LLCs: Paying yourself is easy – just take an owner’s draw. There’s no separate payroll process. However, remember that profit = taxable income to you, whether you withdraw it or not. Keep good records of what you take out to maintain clarity between business and personal funds.

Multi-Member LLC: Splitting Profits and Paying Yourself (Partner Draws & Payments)

If your LLC has more than one owner (member), it’s by default treated as a partnership for tax purposes. Multi-member LLC owners get paid differently than in a single-member LLC, but the fundamental concept is similar: owners share the profits. Here’s how you and your partners can pay yourselves:

1. Profit Distributions (Partner Draws): In a multi-member LLC, the profits are typically split among the members based on each one’s ownership percentage or as defined in your operating agreement. For example, if you own 60% of the LLC and your partner owns 40%, and the LLC makes $100,000 profit, you’d be entitled to $60,000 and your partner $40,000. You can each draw that money out. These distributions (or partner draws) are analogous to the owner’s draw in a single-member LLC, just divided among multiple people.

You and your co-owners can take distributions throughout the year or a lump at year-end. There’s flexibility – some LLCs distribute profits quarterly or when cash flow allows.
Like single-member draws, distributions aren’t taxed at withdrawal. Each member pays income tax on their share of the LLC’s profit allocations, not necessarily on what was actually distributed (if you left some profit in the business, you’re still taxed on it individually).
All active members generally pay self-employment tax on their share of the profits (since as partners you’re considered self-employed, not employees). One exception: if a member is more of a passive investor or limited partner not actively involved, they might not owe self-employment tax on that share, but for most small LLCs all partners work in the business so expect self-employment tax similar to the single-member case.

2. Guaranteed Payments (for Services or Priority Pay): Multi-member LLCs (taxed as partnerships) have an option that single-member LLCs don’t use: guaranteed payments. A guaranteed payment is a payment to a partner that’s fixed or guaranteed, regardless of the partnership’s profit. It’s often used when one or more partners perform services or contribute capital and want to ensure a minimum compensation before splitting remaining profits. Essentially, it’s like a salary substitute within a partnership.

Example: You and a friend own an LLC 50/50, but you run the daily operations while your friend is less involved. You might agree that you get a guaranteed payment of $30,000 a year for your work off the top, and then any additional profits are split 50/50. If the business makes $80,000 profit before the guaranteed payment, you get $30k as guaranteed payment first. The remaining $50,000 is then split: $25k to you and $25k to your friend. In total, you’d get $55k and your friend $25k.
Tax on Guaranteed Payments: These are typically treated as ordinary income to the recipient (you) and are deductible expense for the LLC (partnership). That means guaranteed payments reduce the total profit before splitting the rest. They are still subject to self-employment tax for the receiving partner.
Why use them? Guaranteed payments ensure a partner who contributes more time or skill is compensated fairly even if profits are low or split with others. It’s also a way to handle partners working in the business vs. silent partners.

What You Don’t Do in a Multi-Member LLC: You do not put partners on payroll as employees (in a default partnership-taxed LLC). Partners are not employees. The IRS prohibits issuing a W-2 to partners for their share of profits or draws. All compensation to partners comes through the partnership profit-sharing mechanism or guaranteed payments. So, you won’t be taking a “salary” in the traditional sense.

How Multi-Member LLC Owners Pay Themselves:

Set Up an Operating Agreement: This is important. It should spell out each member’s ownership percentage, how profits and losses are allocated, when distributions happen, and any guaranteed payment arrangements. This avoids confusion and conflict when it’s time to take money out.
Take Periodic Draws/Distributions: Similar to a single-member, each partner can draw from their portion of profits. Many multi-member LLCs distribute profit quarterly or annually (especially after calculating the year’s profit). You might also agree on periodic draws against expected profits.
Account for Guaranteed Payments: If you have guaranteed payments, those will typically be paid on a regular schedule (say monthly or quarterly, like a paycheck). Make sure the LLC has enough cash flow to cover these before making additional profit distributions.
Each Partner Pays Taxes Individually: The LLC will file a Partnership tax return (Form 1065) each year, and issue each member a Schedule K-1 showing that member’s share of income (and any guaranteed payments). You each report that on your personal tax returns (Form 1040). You’ll pay income tax on your share, plus self-employment tax on earnings from active participation (which includes guaranteed payments and your share of operating profit).
Estimated Taxes: Like single members, partners should pay quarterly estimated taxes personally, since no taxes are withheld on distributions or guaranteed payments. Coordinate with your partners so no one is caught off guard by tax bills.

Example: John and Mary are equal (50/50) members of an LLC. They have an agreement that John, who manages daily operations, gets a guaranteed payment of $40,000/year, and the rest of profits they split evenly. The LLC makes $120,000 profit for the year before considering John’s guaranteed pay. The LLC pays John $40k as a guaranteed payment (expense), leaving $80,000 profit remaining. That $80k is split $40k to John, $40k to Mary. In total, John received $80k (40k guaranteed + 40k share) and Mary got $40k. The LLC issues K-1s: John’s shows $40k of ordinary income (his share after his guaranteed pay) plus separately reports the $40k guaranteed payment; Mary’s K-1 shows $40k income. John and Mary each pay tax on those amounts on their own returns. John’s entire $80k and Mary’s $40k are subject to income tax, and since both work in the business, likely subject to self-employment tax as well. They did not get W-2s; all of this was handled through owner draws and the K-1 allocations.

Multi-member LLC takeaways: Yes, you pay yourselves by sharing the profit. No traditional salaries or W-2s for members. Use draws/distributions and possibly guaranteed payments. Communicate with your partners and plan distributions so the business retains enough cash to operate. And as always, keep business and personal accounts separate – each partner should take their share from the business account into their own account (and avoid using the business account for personal expenses directly).

LLC with S-Corp Election: Salary + Distribution (Tax-Saving Combo)

Many LLC owners hear about the magical tax benefits of the “S-Corp” – and indeed, an LLC can choose to be taxed as an S corporation. Why do this? One big reason: to split your income into salary and distributions, potentially saving on self-employment taxes. But it also means you must pay yourself a salary as an employee of your own LLC.

What is an S-Corp Election? It’s when your LLC files a form (Form 2553) with the IRS to be taxed under Subchapter S of the Internal Revenue Code. You’re still an LLC legally (with the same liability protection and legal structure), but for federal tax purposes, the IRS treats your company like an S corporation. This is available for LLCs that meet S-Corp criteria (for example, generally having 100 or fewer owners, only U.S. residents/citizens as owners, one class of stock/membership, etc.).

How you pay yourself in an S-Corp LLC:

Reasonable Salary (W-2 wages): If you work in your business (which most owners do), the IRS requires that an S-Corp pay its owner-employees a “reasonable compensation” as wages. This means you must put yourself on the company payroll and pay yourself like an employee. You’ll receive a paycheck on a regular schedule (weekly, biweekly, monthly—up to you) with payroll taxes withheld (income tax, Social Security, Medicare, etc.). The LLC (as your employer) will also pay the employer’s share of Social Security and Medicare on your wages. Come January, you get a W-2 form for your wages, just like any employee.
Owner Distributions: After paying yourself (and any other owner-employees) a salary, any additional profit the LLC earns can be taken as an S-Corp distribution (sometimes called a dividend or just profit distribution). This is simply a transfer of remaining profit to you (and other owners) according to ownership percentages. These distributions are not subject to self-employment tax or payroll tax. They will, however, still be counted as income to you for income tax purposes via a Schedule K-1 from the S-Corp, but they often come with a tax advantage: no 15.3% self-employment tax on that portion.
Example: Your S-Corp LLC made $100,000 profit. You determine a reasonable salary for your role is $60,000. You pay yourself that $60k as wages (with payroll taxes). The remaining $40,000 is profit; the S-Corp can distribute that $40k to you as an owner distribution. You’ll pay regular income tax on the full $100k (salary + distribution), but only the $60k salary was subject to Social Security/Medicare taxes. The $40k distribution escapes those self-employment/payroll taxes, potentially saving you over $6,000 in taxes compared to if it were all treated as self-employment income. That is the primary benefit of the S-Corp election for an active owner.
Multiple Owners: If your LLC has multiple owners and elects S-Corp, then those who work in the business should also be paid reasonable salaries according to their role, and remaining profits get split among all owners as distributions (often per ownership share). Owners not active in the business might just take distributions and not be on payroll (if truly not providing services).

What is a “Reasonable Salary”? The IRS doesn’t give a hard number; it’s basically what you’d pay someone to do your job. Consider industry standards, your duties, hours, and profits. If you make a ton of profit but pay yourself a tiny salary, that’s a red flag – IRS may reclassify distributions as wages if they think you’re avoiding taxes unfairly. On the flip side, paying yourself 100% of profit as salary defeats the purpose of the S-Corp (you’d pay more in payroll taxes than necessary). The sweet spot is to find a balanced, justifiable salary and then enjoy the rest as distributions.

Setting up Payroll: To pay yourself a salary, your LLC will need a payroll process:

You might use a payroll service or software. Ensure taxes are withheld and paid to IRS/state on time (usually monthly or quarterly deposits).
You’ll file payroll tax forms (941 quarterly, 940 annually for unemployment, W-2 at year end, etc.). Many small business owners outsource this to avoid mistakes.
Don’t forget other compliance: as an employer (even if you’re the only employee), your LLC might need state unemployment insurance, workers comp (some states exempt owner-only companies), etc. It adds complexity, but many consider it worth the tax savings once your profit is high enough.

Tax Reporting: An S-Corp LLC files an S-Corporation tax return (Form 1120-S) each year. This return reports the business income and expenses (including your officer salary as a deductible expense to the company). The profit after salaries is passed through to owners via Schedule K-1 forms. You report W-2 income and the K-1 income on your personal taxes.

Pros and Cons Quick Comparison (S-Corp vs. default LLC):

Pros: Can save money on self-employment taxes, potentially thousands per year if profits are substantial. Having a set salary can also smooth out your personal income and even help in things like mortgage applications (since you have a regular paycheck). It also formalizes separation – you’re clearly treating the business as separate entity (you as an employee of it).
Cons: More paperwork and compliance (payroll, additional tax return). Possibly state-level fees (some states tax S-corps or have franchise taxes). You must pay yourself even if cash flow is low – the IRS expects a salary if there is profit, so you can’t just skip your paycheck to keep all income as distribution. Also, S-Corp election might not be beneficial if your net profit isn’t high; very small businesses might save negligible tax but incur more admin costs. Often, owners consider S-Corp when net profit is above a certain threshold (commonly say $40k-$50k+) to make the effort worthwhile.

Things to Avoid with an S-Corp LLC:

Don’t set an unreasonably low salary. If your LLC nets $200k and you pay yourself $20k, that’s likely unreasonable. IRS can re-characterize and penalize for back payroll taxes.
Don’t forget to actually run payroll. Simply drawing money without treating it as wages in an S-Corp is a big no-no. Once you elect S-Corp, you must treat yourself (and other active owners) as employees.
Avoid double-dipping deductions. Your salary is a business expense; your distributions are not. Don’t mistakenly try to deduct owner distributions or personal draws as an expense – only actual salaries (with payroll taxes) are deductible in S-Corp scenario.
Stay on top of filings. The benefits come with responsibilities: missing payroll tax payments or filings can result in penalties that wipe out tax savings.

Example: Let’s revisit our earlier example in more detail. Suppose Laura has an LLC consulting business that made $100,000 in profit before paying herself.

Scenario 1: Laura is a single-member LLC taxed as a sole proprietorship (default). She doesn’t take a formal salary, so all $100k is her profit and subject to self-employment tax (~15.3%, about $15,300) plus income tax.
Scenario 2: Laura’s LLC elects S-Corp. She pays herself a reasonable salary of $60,000. On that, about $9,180 of Social Security/Medicare tax will be paid (some from her paycheck, some by company). The remaining $40,000 profit passes to her as a distribution, with no Social Security/Medicare tax. She saves roughly $6,120 in self-employment taxes. True, she had to do payroll and additional paperwork, but she finds the savings worth it. She still pays income tax on the full $100k in both scenarios, so income tax is a wash – the savings is purely on the employment tax side.

In summary, if you can and do elect S-Corp status for your LLC, you absolutely can (and must) pay yourself from the LLC through a salary. It’s a mix of being your own boss and your own employee. Just keep it compliant: a fair wage for the work you do, and enjoy the remaining profits with less tax bite.

LLC Taxed as C-Corp: Paying Yourself Like a Traditional Corporation

For completeness, let’s touch on the scenario where an LLC elects to be taxed as a C Corporation (by filing Form 8832 to be taxed as a corporation). This is less common for small business LLCs, but some choose it for various reasons (future growth, investors, benefits, etc.). In this setup, your LLC is taxed just like a regular corporation.

How you pay yourself in a C-Corp setup:

You become both a shareholder and an employee of your company. You’ll draw a salary as a W-2 employee, just as in the S-Corp case. The corporation must withhold taxes and pay employer payroll taxes on your wages.
The big difference: Profits are taxed at the corporate level first. If the company has profit left after paying all expenses (including your salary), the corporation will pay corporate income tax on that profit. If you then want to take that remaining profit out for yourself, it would typically be as dividends to you as a shareholder.
Dividends (in a C-corp context) are paid from after-tax profits and are taxable income to you (often at the qualified dividend rate if they qualify). This leads to the infamous “double taxation”: the money was taxed at the corporate level, and then again on your personal return as a dividend. Because of this double tax, many small LLCs avoid C-corp taxation unless there’s a strategic reason.
Example: Your C-Corp LLC earned $100k profit and paid you a salary of $60k. That salary is an expense, so the corporation’s taxable income might be $40k. The corporation pays, say, 21% corporate tax (~$8,400) on that. Now $31,600 remains in the company. If you distribute it as a dividend to yourself, you’ll pay personal tax on $31,600 (at 15% or so, roughly $4,740, if qualified dividend). Combined with the corporate tax, the total tax on that $40k profit could be around $13k plus whatever was paid on your salary via payroll tax and income tax. Comparatively, an S-Corp would have passed that $40k directly to you without corporate tax.
When might C-Corp make sense? If you plan to reinvest profits and not distribute them, the corporate tax rate might be lower than your personal rate, saving money in the short term. Or if you want to offer stock options, attract investors, or go public someday, C-corp is often chosen. But purely for paying yourself, small business owners usually prefer default or S-Corp, not C-Corp, to avoid double taxation.

So yes, you can pay yourself from an LLC even if it’s taxed as a C-Corp, but you’ll be doing it via a salary (and potentially dividends). Treat it essentially like running a standard corporation.

Comparison Table: LLC Owner Pay Methods & Tax Implications by Structure

To clarify all these scenarios, here’s a handy comparison of how you pay yourself from an LLC depending on its structure, and the basic tax treatment of each method:

LLC Type & Tax Status	How You Pay Yourself	Tax Implications	Payroll Required?
Single-Member LLC (Default sole proprietorship for taxes)	Owner’s Draw (take money out of profits as needed).	– LLC’s profit is personal income to you (reported on Schedule C). – Self-employment tax (15.3%) applies to net profit. – Draws themselves aren’t taxed separately (they’re just withdrawals of already-earned profit).	No formal payroll. You do not get a W-2 or pay withholding as your own boss.
Multi-Member LLC (Default partnership for taxes)	Distributions of Profit (based on ownership share) and/or Guaranteed Payments (fixed amounts to members).	– Each member pays income tax on their share of partnership profit (whether or not distributed). – Active members pay self-employment tax on their earnings (including guaranteed payments). – Guaranteed payments are tax-deductible to the LLC and taxable to the recipient.	No payroll for owners (members are not employees). Members do not receive W-2s for their share of profits.
LLC as S-Corp (Elected S corporation taxation)	Salary (W-2) to owner-employee + Owner Distributions of remaining profit.	– Owner’s salary is subject to payroll taxes (Social Security, Medicare) and income tax withholding. – The salary is a deductible business expense for the LLC. – Remaining profit passes to owner as distribution without self-employment tax. – Owner pays income tax on both salary and distribution (distribution reported on K-1), but saves on SE tax for distribution portion.	Yes. Must run payroll for owner salary (W-2). File payroll tax returns, withhold taxes. Distributions are taken via owner draws outside of payroll.
LLC as C-Corp (Elected C corporation taxation)	Salary (W-2) to owner-employee + optional Dividends to shareholder from after-tax profits.	– Owner’s salary is taxed like any employee’s: income tax withholding + employer/employee payroll taxes. – Salary is deductible to the corporation. – Company pays corporate income tax on any remaining profit. – If profits distributed as dividends, owner pays tax on dividends (potential double taxation).	Yes. Must run payroll for any salaries. Dividends (if any) are distributed by corporate action, not through payroll.

(In all cases, remember to also consider state taxes and other specifics, but the above covers federal tax treatment.)

This table highlights the key differences. In summary: Default LLCs (single or multi) = no payroll, just draws/distributions with self-employment tax on profits. S-Corp LLC = payroll + distributions to save on self-employment tax. C-Corp LLC = payroll + potential dividends with double tax considerations.

Key Terms to Know (LLC Owner Compensation Glossary)

Understanding how to pay yourself is easier once you grasp the terminology. Here are some key terms and concepts that popped up, explained:

Owner’s Draw: A withdrawal of cash by an owner from the business profits. Common for sole proprietors and single-member LLCs (and by extension, partners withdrawing their profit share). Not considered a salary, and not taxed at the time of draw (tax is on the profit itself).
Distributions: A general term for payouts of profit to owners. In LLC/partnership context, distributions refer to allocating profit to members. In S-Corp context, often used to mean the profit paid out to shareholders (which is not salary). Similar to draws, just usually used in multi-owner or corporate contexts.
Guaranteed Payments: A preset payment to a partner in a partnership (or multi-member LLC taxed as partnership) for services or capital, regardless of profit. It’s like a salary substitute for partners. Taxed as ordinary income to the partner and deductible by the partnership.
Self-Employment Tax: The tax self-employed individuals pay to cover Social Security and Medicare, equivalent to the combined employer+employee FICA taxes. Rate is roughly 15.3% on net self-employment earnings (up to a Social Security wage base for that portion). LLC owners in default taxation (sole prop/partnership) generally pay this on business profit.
Payroll Taxes: Taxes related to wages – mainly Social Security and Medicare (FICA) and federal/state unemployment. If you’re on payroll (like in an S-Corp or C-Corp scenario), you and your company will pay these on your salary. These are separate from income tax.
W-2: The year-end wage statement form given to employees showing their salary and tax withholdings. If you pay yourself a salary from your LLC (S-Corp or C-Corp style), you’ll receive a W-2 for your personal tax filing.
K-1: A tax form (Schedule K-1) that partnerships and S-Corps give to their owners, reporting each owner’s share of profits, losses, and other tax items from the business. If your LLC is multi-member (partnership) or S-Corp, expect a K-1 each year rather than a W-2 (unless S-Corp in which case you might get both a W-2 and a K-1).
Reasonable Compensation: An IRS requirement for S-Corps (and C-Corps) that salaries paid to owner-employees should be what you’d pay someone in that role. It’s to prevent owners from abusing classifications (like paying too low to avoid taxes). It’s subjective but based on industry norms and the scope of work.
Pass-Through Entity: A business entity like a standard LLC (sole prop/partnership) or S-Corp where the business itself doesn’t pay income tax. Instead, profits “pass through” to owners’ personal tax returns. LLCs (without C-Corp election) are pass-through by default. In contrast, a C-Corp pays its own tax.
Double Taxation: Refers to C-Corp scenario where income is taxed at the corporate level and then again at the owner level if distributed as dividends. LLCs that avoid C-Corp status generally avoid double taxation.
Limited Liability: The legal concept that the owners’ personal assets are protected from business debts and lawsuits. Paying yourself doesn’t directly affect this, unless you blur the lines by commingling funds. Always pay yourself in a clear, documented way (draw, salary, etc.) rather than just using company funds freely, to maintain that liability shield.
Operating Agreement: For multi-member LLCs, this document outlines each owner’s rights and responsibilities, including how profits and losses are shared and how/when distributions happen. It’s key to refer to when determining how to pay partners.
Form 2553: The IRS form to elect S-Corp status for your LLC (must be filed timely).
Form 8832: The IRS form to elect C-Corp status (or other tax classification) for your LLC.
Estimated Taxes: Quarterly tax payments to IRS (and possibly state) that self-employed individuals must pay since no taxes are being withheld from pay. If you take draws/distributions, you likely need to budget for and pay estimated taxes every quarter.

Knowing these terms helps you navigate discussions with your accountant or when researching further. It’s the language of getting paid from your own business.

Detailed Examples: How Different LLC Owners Pay Themselves

Let’s walk through a few real-world style scenarios to solidify the concepts. These examples illustrate how the method of paying yourself can differ by LLC type, and the outcomes for taxes and cash flow.

Example 1: Single-Member LLC in Action

Scenario: Maria is the sole owner of “Maria’s Web Design LLC,” a single-member LLC. In 2024, after expenses, her business earned $75,000 in net profit.

How Maria pays herself: Since Maria’s LLC is just her, taxed as a sole proprietorship, she doesn’t have a paycheck from her company. Instead, Maria decides to take an owner’s draw of $5,000 each month for personal living expenses. She transfers $5k from the business account to her personal account at the end of each month.

Over the year, Maria has drawn $60,000. The LLC’s profits were $75,000, so $15,000 remained in the business account by year-end (which she might keep as a cushion or reinvest in new equipment next year).

Taxes: Maria will report the full $75,000 on her personal tax return (Schedule C). She’ll pay income tax on that and also self-employment tax on $75k. The fact that she only actually took $60k for herself and left $15k in the business doesn’t reduce her tax – she’s taxed on what the business made, not what she withdrew. The $60k of draws are not separately taxed or reported to the IRS; they were internal transfers. But Maria’s bookkeeping shows that her owner’s equity in the business decreased by $60k (because she took that out for herself).

Outcome: Maria got to pay herself a consistent amount each month (good for budgeting!). She kept funds separate (business vs personal accounts). No payroll hassle. She just needs to remember to send in quarterly tax payments because no one withheld taxes from that $60k she took. As long as she saved a portion of her draws for taxes, she’s in good shape.

Example 2: Multi-Member LLC with Guaranteed Payment

Scenario: Alex and Ben start an LLC (multi-member) called “AB Consulting LLC.” They agree Alex works full-time on it, while Ben contributes some initial capital and works part-time. They split ownership 50/50. They decide Alex will get a guaranteed payment of $30,000 a year for his extensive work, and any additional profit they split equally. In the first year, the LLC’s net profit (before considering Alex’s guaranteed pay) is $100,000.

How Alex and Ben pay themselves:

Alex receives his $30,000 guaranteed payment throughout the year (let’s say, $2,500 a month).
After accounting for that, the LLC has $70,000 left as profit. As equal owners, they split that: $35,000 to Alex, $35,000 to Ben.
They distribute those profits to each: cutting a check or transfer of $35k to Alex (in addition to what he already got) and $35k to Ben.

Alex’s total take for the year: $65,000 ($30k + $35k). Ben’s total: $35,000.

Taxes: The LLC files a partnership tax return. Alex’s K-1 will show $35k of ordinary income (his share after his guaranteed payment) plus $30k of guaranteed payment (usually listed separately on the K-1). Ben’s K-1 shows $35k of ordinary income. Alex and Ben each report these on their personal returns. Both will pay income tax on those amounts. Also, since both are active (Alex definitely, and Ben even part-time counts as active), both pay self-employment tax on their shares (Alex on the full $65k, Ben on his $35k). The guaranteed payment was deducted by the LLC, lowering the profit available for split – effectively it ensured Alex got a larger portion due to his work.

No W-2s were issued. They simply used the business account to pay Alex’s monthly guaranteed draws and to give out the profit splits. Everything is documented in their books per their operating agreement.

Outcome: This arrangement rewarded Alex for the extra time he put in, yet still shared the remaining profits equally. Alex got regular income via guaranteed payments; Ben waited until year-end for his share. Both need to handle their own taxes. AB Consulting LLC maintained its partnership structure without any payroll.

Example 3: LLC with S-Corp Election – The Tax Saver

Scenario: Chloe is the 100% owner of an LLC, “Chloe’s Creative Co.” She made a net profit of $120,000 last year as a single-member LLC (and paid self-employment tax on all of it). This year, she expects similar profits and decides to elect S-Corp for her LLC to save on taxes. With her accountant’s help, she files Form 2553 effective Jan 1. They determine that a reasonable salary for Chloe’s role (graphic designer and creative director) is about $50,000 per year. The business ends up making $130,000 profit this year (before her salary).

How Chloe pays herself:

As an S-Corp, Chloe’s LLC now runs payroll. Chloe puts herself on a biweekly payroll at $50,000/year. She gets a paycheck roughly $1,923 before tax each two weeks. Taxes are withheld (income tax, Social Security, Medicare), and the LLC remits those to the IRS and state. By year-end, she’s received $50k in gross wages (and a bit less net after withholdings).
The business profit after paying her $50k salary is $80,000 (since $130k – $50k = $80k). That remaining $80k is still Chloe’s as the owner. She can take that out in one or multiple distributions. For instance, she might take $20k each quarter as an owner distribution, or just take it as needed. By year-end she has indeed transferred the full $80k to herself outside of payroll.
Come January, the LLC issues Chloe a W-2 for $50k wages. Also, as an S-Corp, it issues a K-1 showing $80k of S-Corp income to her.

Taxes: Chloe pays herself the $50k salary and both she and the company pay payroll taxes on that (approximately $7,650 from her paycheck and $7,650 from the company for Social Security/Medicare, for example). The $80k distribution is not subject to these payroll taxes. Chloe will pay regular income tax on the full $130k (salary + distribution), but because $80k wasn’t hit with self-employment tax, she saves a significant amount (around $12k) in taxes compared to if she were still a sole proprietor paying self-employment tax on all $130k.

She does have to pay some unemployment insurance, maybe a payroll service fee, and file an extra tax return for the S-Corp, but those costs are far less than $12k, so she comes out ahead.

Outcome: Chloe successfully pays herself in two ways: a steady paycheck and bonus-like profit distributions. She stays compliant by giving herself a fair salary. The result is more money in her pocket after taxes. She found the tipping point where S-Corp election made financial sense for her level of profit.

These examples show how the numbers and methods play out. Your situation will vary, but the principles remain: the LLC structure dictates the mechanics, and you can plan your personal pay accordingly.

Mistakes to Avoid When Paying Yourself from an LLC

When it comes to compensating yourself, there are some common pitfalls LLC owners (especially first-timers) should watch out for. Avoiding these mistakes will keep your business healthy and out of trouble:

Commingling Funds: Don’t pay personal expenses directly from the business account. This is a big no-no. Always pay yourself first (draw or salary), then use that money personally. If you blur the lines, you risk the LLC’s liability protection (courts could say you aren’t treating the LLC as separate) and it makes bookkeeping a nightmare.
Not Saving for Taxes: It’s easy to transfer money to yourself and forget about Uncle Sam. Remember, draws and distributions have no taxes withheld. Many LLC owners get a nasty surprise at tax time because they didn’t reserve enough for their tax bill. Make estimated tax payments quarterly to stay on track, or at least set aside a percentage of every draw in a savings account for taxes.
Misclassifying Payments: If you have an S-Corp, don’t take all your money as “distributions” to dodge taxes – you must run a reasonable payroll. Conversely, if you’re a single-member LLC (no S-Corp), don’t put yourself on payroll or try to issue a W-2 to yourself – that’s incorrect and could cause accounting and tax filing issues. Know which methods apply to your LLC type.
Overpaying or Underpaying Yourself: Taking out too much can cripple your business’s cash flow. Make sure the business retains enough money to cover expenses, growth, and a safety cushion. On the flip side, especially in an S-Corp context, paying yourself too little (or nothing) in salary just to maximize low-tax distributions can get you in hot water with the IRS for not taking a reasonable compensation. Find a balance that sustains the business and meets legal requirements.
Ignoring State Requirements: Some states have specific rules or fees for LLCs and S-Corps. For example, an S-Corp in some states might be subject to a franchise tax or different filing requirements. And LLCs in certain states owe annual fees based on revenue (like California’s LLC fee). These aren’t about “paying yourself” per se, but they affect how much you can take home. Stay informed about your state’s laws so you don’t accidentally take money that needed to go to a state fee or tax.
No Documentation or Agreement: In multi-member LLCs, not having a clear operating agreement or record of how you agreed to split profits can lead to disputes or even legal issues. Always formalize the profit-sharing arrangement. If one partner is taking a draw, make sure it’s recorded and communicated – unequal or unscheduled withdrawals cause resentment and confusion.
Thinking Distributions Aren’t Income: Some owners mistakenly think if they don’t “pay themselves a salary,” then the money they take out isn’t income. All business profit is income to the owners (except for C-Corp retained earnings). Don’t fall into the trap of not reporting all your earnings just because you left some money in the business account or because you took it out via draws. It’s all reportable on your taxes in pass-through entities.
Forgetting About Other Taxes: Federal income and self-employment taxes aren’t the only considerations. If you’re taking a salary, you’ll have to consider state income tax withholding, state unemployment tax, possibly local taxes. If you take large draws, you might owe state estimated taxes too. Also, if your LLC is making a lot of profit, consider that you might bump into higher tax brackets or phaseouts for deductions. Plan accordingly.
Not Reevaluating as You Grow: The way you pay yourself might need to change as your business grows or changes. Maybe you started as single-member LLC with modest profit – draws were fine. Now the business is booming; it might be time to elect S-Corp to save money, or maybe bring on a partner and set up a new structure. Revisit your compensation method each year or when major changes happen.
Treating Loans or Personal Infusions Incorrectly: If you loan money to the LLC or vice versa, treat it as a loan, not income. Similarly, if you invest extra personal money into the business, record it properly as owner contribution. Don’t confuse these with paying yourself; payback of a loan you gave the business isn’t income (nor is injecting cash an expense), but sloppy records could make it look like you “paid yourself” improperly. Clarity is key.

Avoiding these mistakes ensures that paying yourself from your LLC remains a smooth, beneficial process rather than a source of legal or financial headaches. When in doubt, consult with an accountant or CPA experienced in small business – a little professional guidance can save you from costly errors.

Relationships & Connections: LLCs, Taxes, and You

To fully understand the topic, it helps to see the relationships between the key players and concepts involved when you pay yourself from an LLC:

You (Owner) vs. The LLC (Business Entity): Legally, an LLC is a separate person (entity) from you. However, tax-wise, in many cases (sole prop or partnership) it’s transparent. When you take money out, you’re moving it from that separate entity to yourself. Treating the LLC as separate (with its own bank account, records, etc.) is crucial for liability protection. Paying yourself is the bridge between the company’s finances and your personal finances.
The IRS and Business Structures: The IRS doesn’t actually have an “LLC” tax category. LLCs default to either disregarded (sole prop) or partnership, or you elect S or C corp. So when we talk about how to pay yourself, it’s really about how the IRS views your LLC. If it sees it as a sole proprietorship, it expects no W-2 wages to yourself. If as an S-Corp, it expects W-2 wages, etc. The relationship between your LLC and the IRS is defined by the tax classification you choose.
State Law vs. Federal Tax: State law is what creates your LLC (you register with the state). That law gives you the right to take distributions, etc., per your operating agreement. Federal (and state) tax law then says how those distributions or payments are taxed. For example, state LLC law might say “profits are distributed as members agree,” and federal tax law says “those profits will be taxed on members’ returns.” Understanding both sides helps; usually, paying yourself doesn’t violate any state LLC law as long as you’re not defrauding creditors (just ensure the LLC can pay its bills after distributions). But some states might have specific requirements if you take certain actions (like an LLC in certain states must file something if it changes tax status).
Accountants, Payroll Providers, and You: Practically, when paying yourself a salary (in S or C corp scenarios), you’ll likely interact with a payroll service or accountant. They become key players in ensuring things run smoothly. For draws, an accountant or bookkeeper helps record it correctly in the books and advises on tax estimates. So building a relationship with a trusted financial professional is often part of the picture for an LLC owner who wants to get compensation strategy right.
IRS Compliance and Reasonable Salary (S-Corp): There’s a bit of a tug-of-war expected: you might want to minimize your salary to save on taxes, but the IRS expects you not to go too far. Being aware of this relationship (between your decisions and IRS oversight) is key. If ever audited, the IRS will look at that relationship – were you treating your S-Corp like a piggy bank (all distributions, no salary)? Or like a compliant business (paying an appropriate salary)? It’s wise to err on the side of caution and documentation: justify your salary with industry data if possible.
Multiple Owners Relationship Dynamics: If you have co-owners, paying yourselves isn’t just a tax or legal issue, it’s a business relationship issue. Open communication is critical. Everyone should be on the same page about how much each person can take out and when. A healthy partnership will discuss draws and distributions so no one feels another member is taking too much or withholding profits unfairly.
Concept of Equity vs. Compensation: Remember the concept of your owner’s equity in the LLC. When you invest money or leave profit in, that increases your equity (basically the company owes you that value). When you take draws, you reduce your equity. In a corporation scenario, salary is compensation (an expense), whereas draws/distributions are not expenses but a transfer of equity to you. This relationship between equity and compensation is an accounting fundamental. Over time, consistent profits and draws will still often net out to some retained equity left in the business for growth or reserve. Keep an eye on your company’s financial health – don’t withdraw so much that your equity goes negative (owing the company money).
Limited Liability Preservation: The way you pay yourself can affect the relationship between you and the company in legal terms. If you treat the LLC as an alter ego and freely mix funds, a court could say the LLC was just a sham and not honor the liability shield (“piercing the corporate veil”). But if you show a clear owner-to-LLC financial relationship (documented draws, proper payroll, respecting the LLC’s separate status), you reinforce that separation. Essentially, pay yourself correctly and the LLC remains a distinct entity that protects you.

Understanding these relationships and interactions helps you make smarter decisions. You’re not operating in a vacuum – tax authorities, laws, and other people (partners or advisors) all play a role in how you pay yourself from the LLC.

Conclusion: Pay Yourself Smartly and Stay Compliant

Answering the question directly: Can you pay yourself from an LLC? Yes, absolutely. Every LLC owner has the right to benefit from their business’s profits. The key is doing it in the proper manner according to your LLC’s structure:

If you’re a sole LLC owner, use simple owner’s draws.
If you have multiple members, use agreed profit splits or guaranteed payments to allocate earnings.
If you’ve elected S-Corp, put yourself on payroll for a salary and take additional profits as distributions.
If taxed as a corporation, follow the corporate model of salary (and dividends if needed).

Each method lets you enjoy the fruits of your labor while keeping the IRS and legalities satisfied. By understanding the distinctions and following best practices, you can pay yourself from your LLC in a way that maximizes your personal gain and minimizes hassle and risk.

Use the comparisons, tables, and examples above as a reference as you plan your own compensation. When in doubt, consult with a financial professional – but now you’ll be able to have an informed conversation, armed with knowledge of draws vs. salaries, self-employment tax vs. payroll tax, and more.

Running an LLC gives you flexibility and control. Paying yourself is one of the big perks of being your own boss – make sure to do it right, and you’ll enjoy the rewards while keeping your business and finances healthy.

FAQ: Paying Yourself from an LLC – Quick Answers

Q: Can I pay myself a salary from my LLC?
A: Yes. But only if your LLC is taxed as an S-corp or C-corp. In a default single or multi-member LLC, you take draws/distributions instead of a W-2 salary.

Q: Do LLC owners get a W-2 form for their pay?
A: No. Not in a default LLC. Owners of a pass-through LLC don’t get W-2s for draws. Only if the LLC elects S-corp/C-corp and you run payroll would you get a W-2.

Q: Is an owner’s draw from an LLC considered income?
A: Yes. It’s not taxed at the moment of withdrawal, but it comes from business profits which are taxable to the owner. The draw itself isn’t separate taxable income, but the underlying profit is.

Q: Do I have to pay self-employment tax on LLC profits?
A: Yes. If your LLC is taxed as a sole prop or partnership, profits are subject to self-employment tax (for active owners). S-corp distributions are not subject to SE tax, however.

Q: Can a multi-member LLC pay owners differently (unequal amounts)?
A: Yes. As long as it’s agreed in the operating agreement. They can allocate profits in a special way or use guaranteed payments. The IRS expects allocations to have an economic rationale.

Q: Should I pay myself through payroll in my LLC?
A: No (if default LLC). Yes (if S/C-corp). Default LLCs use draws, so no payroll for owners. If you elect S-corp, then yes, you need to use payroll for your salary.

Q: Are LLC distributions taxed twice?
A: No. In a pass-through LLC (default or S-corp), distributions are only taxed once on the owner’s return. In a C-corp scenario, dividends to owners can be taxed twice (at corporate and personal level).

Q: Can I change how I pay myself from my LLC later?
A: Yes. You can adjust at any time. For example, you can elect S-corp for next year to start taking a salary, or change distribution schedules. Just follow IRS procedures for elections and update your operating agreement if needed.

Q: Is there a limit to how much I can draw from my LLC?
A: No (as long as profits and capital allow). You can draw any amount of profit. But leaving some cash for expenses and taxes is wise. Don’t draw more than the business’s available equity, or you dip into capital.

Q: Can I take money out of my LLC if it’s not making profit yet?
A: It depends. If there’s no profit, any money you take could be return of the money you put in (not taxable) or a loan. You generally can’t have a taxable draw if there’s no earnings; you’d be reducing your owner capital. It’s better to wait for profits or properly document it as a loan or return of capital.