How To Pay Yourself From An LLC (2024 Guide) (2024)

FAQs

How To Pay Yourself From An LLC (2024 Guide)? ›

Pay Yourself as a W-2 Employee

That's called an owner's draw. You can simply write yourself a check or transfer the money for your business profits from your LLC's business bank account to your personal bank account. Easy as that!

However, you are not paid like a sole proprietor where your business' earnings are your salary. Instead, you are paid directly through what is known as an “owner's draw” from the profits that your company earns. This means you withdraw funds from your business for personal use.

Biweekly is a common choice, but you also can pay yourself more or less often. At a minimum, pay yourself quarterly to stay on top of your tax obligations. For a draw, you can just write yourself a check or electronically transfer funds from your business account to your personal one.

For most businesses however, the best way to minimize your tax liability is to pay yourself as an employee with a designated salary. This allows you to only pay self-employment taxes on the salary you gave yourself — rather than the entire business' income.

A dedicated LLC bank account is an essential step to maintaining the legal distinction between the business and its owners, which is necessary to preserve limited liability protections. Even single-member LLCs should have one.

Can I deposit a business check in my personal account? No, you should not deposit a check that was made out to a business into a personal account. While it may seem convenient to use both business and personal checking accounts interchangeably, it is never worth the potential problems involved.

For many individuals, an owner's draw is classified as income and may be subject to federal, state, local, and self-employment taxes, so it's important to plan ahead before filing taxes.

Misappropriation of funds is a white-collar theft crime similar to embezzlement. For example, a CEO or managing partner who used company funds to pay personal credit card bills could be facing charges of misappropriation of funds and embezzlement.

What percentage of income should I pay myself from my LLC? ›

Reasonable compensation

Some tax professionals recommend paying yourself 60 percent in salary and 40 percent in dividends to stay clear of IRS problems unless this means your salary would be too low compared to others in your field.

Your tax liability for self-employment tax does not change. LLC taxed as an S corporation. As an LLC, you can elect to be taxed as an S corporation. If you choose this option, you will not pay self-employment tax.

For example, a single-member LLC is taxed like a sole proprietorship, so you'll be required to file a 1099 when doing business with one. However, an LLC that elects S-corp tax status is subject to corporate reporting requirements, so filing a 1099 is unnecessary.

To pay yourself LLC income through an owner's draw, write a check from the LLC to the business owner's personal account. Record the withdrawal as an owner's draw, along with the appropriate debit in the owner's business account. This periodic payment eliminates the need for payroll taxes and forms.

This transfer is considered as an "income" and can be transferred to your personal account as long as you have paid the necessary taxes on it. So, it is important to make sure that you have correctly reported and paid any taxes due on the income that you are transferring.

An alternative method is to pay yourself based on your profits. The SBA reports that most small business owners limit their salaries to 50% of profits, Singer said.

When you take an owner's draw, no taxes are taken out at the time of the draw. However, since the draw is considered taxable income, you'll have to pay your own federal, state, Social Security, and Medicare taxes when you file your individual tax return.