How to Pay Yourself From an LLC

How you pay yourself from your LLC depends on how your LLC is taxed. Single-member LLCs use owner's draws. Multi-member LLCs use draws or guaranteed payments. LLCs taxed as S Corporations require a W-2 salary. Each method has different tax implications — and choosing the wrong one can cost you.

Your LLC's tax classification is the starting point for figuring out how to pay yourself. The IRS doesn't treat all LLCs the same way, and the classification your LLC holds — by default or by election — determines which payment methods are available to you.

A single-member LLC is treated as a disregarded entity by default. The IRS ignores the LLC as a separate tax entity and taxes the owner directly. A multi-member LLC is treated as a partnership by default, filing Form 1065 and issuing a Schedule K-1 to each member. Either type can elect to be taxed as an S Corporation by filing IRS Form 2553 — and that election changes the payment rules significantly.

Most LLC owners don't realize the classification question comes first. Get that wrong and the payment method you choose may not hold up under IRS scrutiny.

An owner's draw is the standard way to pay yourself from a single-member LLC taxed as a sole proprietorship. You transfer money from your LLC's business bank account to your personal account. The draw itself isn't a business expense and isn't subject to payroll taxes — but you'll still owe self-employment tax on the LLC's net profit.

There's no required schedule or fixed amount. You can take draws whenever the business has cash available. That flexibility is one reason most solo LLC owners prefer this method — but it also means you need to track what you're taking out and set aside money for taxes yourself, since no withholding happens automatically.

The IRS taxes you on the LLC's total profit for the year, not just the amount you drew. So even if you left money in the business account, you'll owe tax on it.

In a multi-member LLC taxed as a partnership, members can receive guaranteed payments — fixed amounts paid regardless of whether the LLC turns a profit. Guaranteed payments work similarly to a salary in that they're predictable and set in advance, but they're not processed through payroll.

The LLC deducts guaranteed payments as a business expense, and each member reports their guaranteed payments on their Schedule K-1. Members who receive guaranteed payments owe self-employment tax on those amounts — the same 15.3% rate that applies to sole proprietors. The amounts must be reasonable and actually paid or credited to be deductible.

Members can also take profit distributions on top of guaranteed payments, based on their ownership percentage as set out in the operating agreement.

If your LLC has elected S Corporation tax status by filing IRS Form 2553, you're required to pay yourself a reasonable salary as a W-2 employee before taking any distributions. This isn't optional — the IRS specifically requires S Corp owner-employees who perform services for the business to receive reasonable compensation.

Reasonable compensation means what you'd pay someone else to do the same work. The IRS looks at industry pay rates, your role, and the time you put in. Underpaying yourself to avoid payroll taxes is one of the most common S Corp audit triggers.

The S Corp structure can reduce your overall tax bill because distributions above your salary aren't subject to self-employment tax. But you need payroll set up, W-2s filed, and payroll taxes withheld and remitted. A tax professional can help you figure out whether the S Corp election makes sense for your income level.

No matter how you pay yourself, you'll owe taxes on the LLC's profits. The method you use determines when and how those taxes are calculated — not whether you owe them.

For single-member LLCs and multi-member LLCs taxed as partnerships, the self-employment tax rate is 15.3% on net earnings — 12.4% for Social Security and 2.9% for Medicare. You report this on Schedule SE when you file your personal return. Because no employer is withholding taxes for you, most LLC owners make quarterly estimated tax payments to avoid a large bill at year end.

For LLCs taxed as S Corporations, payroll taxes apply only to your W-2 salary. Profit distributions above your salary aren't subject to self-employment tax — which is the core tax advantage of the S Corp election. The trade-off is the cost and complexity of running payroll.

The mechanics of paying yourself are straightforward once you know which method applies. Keep a dedicated business bank account separate from your personal finances — this is the account your LLC uses to receive revenue and pay expenses. When you pay yourself, you transfer money from that business account to your personal account.

For owner's draws and distributions, an ACH transfer or a check written from the business account to yourself both work. Label the transaction clearly in your records — "owner's draw" or "member distribution" — so your bookkeeping stays clean and the transfer is easy to explain if the IRS ever takes a closer look.

For S Corp salary payments, you'll need payroll software or a payroll provider to handle withholding, remittance, and W-2 filing. Don't run your salary as a simple transfer — the IRS expects payroll records to back up the compensation you're claiming.