How to Pay Yourself From an LLC
Learn how to pay yourself from your LLC — owner's draws, guaranteed payments, and S Corp salary. Understand the tax implications of each method so you can choose the right approach.
Bizee Editorial Staff
Editorial Team
Introduction
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. If your LLC is taxed as an S Corporation, you need to pay yourself a salary first. Each method has different tax implications.
How owner's draws work
In a single-member LLC taxed as a sole proprietorship, you pay yourself through an owner's draw — a transfer of money from your LLC's bank account to your personal account. Draws aren't wages, so no payroll taxes are withheld at the time of the transfer.
The IRS treats a single-member LLC as a disregarded entity, which means the business's profits flow directly to your personal tax return on Schedule C. You pay income tax and self-employment tax on the net profit of the business — not just on the amount you drew out. Even if you leave money in the LLC account, you still owe tax on what the business earned.
Most single-member LLC owners make draws whenever they need personal income. There's no required schedule, but keeping a record of each transfer makes bookkeeping and tax prep much cleaner.
How multi-member LLCs pay members
In a multi-member LLC taxed as a partnership, members can receive profit distributions or guaranteed payments. Distributions are based on each member's ownership percentage as set out in the operating agreement. Guaranteed payments are fixed amounts paid regardless of whether the LLC turns a profit — they work more like a salary.
The LLC files Form 1065 and issues a Schedule K-1 to each member showing their share of income. Members report that income on their personal returns and pay self-employment tax on guaranteed payments and their distributive share of active business income. Guaranteed payments are deductible by the LLC as a business expense.
One thing that catches people off guard: in a multi-member LLC, you owe tax on your share of the LLC's profits whether or not the money was actually distributed to you. If the LLC had a profitable year but kept the cash in the business, you still report your share as income.
How S Corp salary works for LLC owners
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. The IRS defines reasonable compensation as what you'd pay someone else to do the same work at a comparable business.
The salary portion goes through payroll and is subject to payroll taxes — both the employee and employer share of Social Security and Medicare. Profits above the salary can be taken as distributions, which are not subject to self-employment tax. That's the core tax advantage of the S Corp election: you pay payroll taxes only on the salary, not on the full profit.
The IRS pays close attention to S Corp owner compensation. Paying yourself an unreasonably low salary to shift more income to distributions is a known audit trigger. A tax professional can help you figure out what a defensible salary looks like for your role and industry.
Taxes on LLC owner payments
Regardless of how you pay yourself, you'll owe taxes on your LLC's profits. The method you use determines when and how those taxes are calculated — not whether you owe them.
Self-employment tax is 15.3% on net earnings — 12.4% for Social Security and 2.9% for Medicare. Single-member LLC owners and multi-member LLC members receiving guaranteed payments both pay self-employment tax on their active income. S Corp owners pay payroll taxes only on their salary; distributions above the salary are not subject to self-employment tax.
Because no taxes are withheld from draws or distributions, most LLC owners make quarterly estimated tax payments to the IRS to avoid underpayment penalties at year end. A tax professional can help you figure out the right payment amounts based on your projected income.
How to move money from your LLC to yourself
The mechanics are straightforward: transfer money from your LLC's business bank account to your personal bank account. You can do this by ACH transfer, check, or wire. What matters is that you keep a record of each transfer — the date, the amount, and whether it's a draw, a guaranteed payment, or a salary payment.
Keeping your business and personal finances in separate accounts is essential here. Without that separation, a court could decide your LLC isn't really a distinct entity — and at that point your personal finances are fair game for business debts or judgments. A dedicated business bank account is one of the simplest ways to protect that separation.
If you're running payroll for an S Corp salary, you'll need payroll software or a payroll provider to handle withholding, deposits, and quarterly filings. The IRS requires payroll tax deposits on a schedule based on your total payroll liability — missing those deposits can mean penalties.
FAQ
It depends on your tax election. If your single-member LLC is taxed as a sole proprietorship — the default — you take an owner's draw by transferring money from your LLC bank account to your personal account. No payroll is required. If your LLC has elected S Corp status, you need to pay yourself a reasonable salary through payroll before taking any distributions.
In a multi-member LLC taxed as a partnership, you pay yourself through profit distributions or guaranteed payments. Distributions are based on your ownership percentage as set out in your operating agreement. Guaranteed payments are fixed amounts paid regardless of profitability — they're deductible by the LLC and reported on your Schedule K-1 as self-employment income.
Generally, no — not in the traditional payroll sense. LLC members taxed as a sole proprietorship or partnership don't take a salary; they take draws or guaranteed payments. The exception is an LLC that has elected S Corp tax status. In that case, owner-members who work in the business are required to pay themselves a reasonable salary through payroll before taking distributions.
The IRS requires that S Corp owner-employees receive reasonable compensation — meaning what you'd pay someone else to perform the same role at a comparable business. There's no fixed minimum, but paying yourself an artificially low salary to shift more income to distributions is a known audit trigger. A tax professional can help you figure out a defensible number based on your role, industry, and the LLC's revenue.
Yes, but only if the LLC has elected S Corporation tax status. In a default single-member or multi-member LLC, owners aren't employees of their own LLC and can't run their own compensation through payroll. With an S Corp election, owner-members who perform services for the business are required to pay themselves through payroll at a reasonable salary before taking distributions.
Yes. You owe taxes on your LLC's profits regardless of how much you draw out. In a default LLC, profits flow to your personal return and are subject to income tax and self-employment tax at 15.3%. The draw itself doesn't create a separate tax event — the tax is on the profit, not the transfer. Because no taxes are withheld from draws, most LLC owners make quarterly estimated tax payments to the IRS.
It depends on your LLC's cash flow, your personal expenses, and your tax situation. There's no legal minimum for draws in a default LLC — you can take as much or as little as the business can support. The practical rule is to leave enough in the business to cover upcoming expenses and taxes. A tax professional can help you figure out a draw amount that works for both your personal finances and your LLC's cash position.
