How to Pay Yourself from an LLC

Learn how to pay yourself from an LLC with owner's draws, salary, and S-corp election. Compare single-member and multi-member options and avoid tax surprises.

The short answer

Wondering how to pay yourself from an LLC? The answer depends on how your LLC is taxed and how many owners it has. Most single-member owners take owner's draws, while S-corp owners must take a salary. There is no single right way, so this guide breaks down the options. The two main choices are owner's draws and a formal salary, and understanding the difference saves you from tax surprises at the end of the year.

Owner's draws for single-member LLCs

If you are the only member and your LLC is taxed as a sole proprietorship, you take owner's draws. A draw is simply money you transfer from the business to yourself, and you can take it whenever you want. You do not need to run payroll or withhold taxes. Instead, you pay income tax and self-employment tax on the LLC's net profit when you file your personal return. Keep a record of every draw so your bookkeeping stays accurate. Many owners set a regular monthly amount so their personal budget stays predictable. You can take draws weekly, monthly, or as a lump sum, as long as you leave enough cash in the business to cover taxes and operating costs.

Distributions for multi-member LLCs

Multi-member LLCs work the same way unless the operating agreement says otherwise. Each member receives a share of the profits based on their ownership percentage. The IRS taxes each member on their share of the LLC's income, whether or not they actually take the money out. That is why the operating agreement should spell out how profits are split. See our guide on starting an LLC for why that document matters.

When you need a salary

The rules change if your LLC elects S-corp status. As an S-corp, you must pay yourself a reasonable salary for the work you do, and the salary must go through payroll with proper tax withholding. The rest of the profit can be paid as distributions, which are not subject to self-employment tax. The tradeoff is that payroll adds paperwork and cost. S-corp status usually makes sense once your net profit is high enough to justify it, often above $40,000 to $50,000 a year.

Self-employment tax basics

Self-employment tax is the price of being your own boss. It covers Social Security and Medicare, and the rate is 15.3 percent on your net earnings. When you take draws, you owe self-employment tax on the full amount of your profit. When you take an S-corp salary, you pay payroll taxes on the salary, but distributions escape the self-employment tax. That difference is the main reason owners consider S-corp status.

Setting up payroll when you need it

You only need formal payroll if you have an S-corp election or if you hire employees. For a simple single-member LLC, payroll is overkill. If you do need it, you can use a payroll service, an accountant, or the IRS's own system. The service calculates withholding, files the returns, and issues your paychecks. Expect to pay a small monthly fee for the convenience. If you skip payroll when you should not, the IRS can reclassify your distributions as wages and hit you with back taxes and penalties.

How to choose

Here is a simple way to decide. If your LLC is a single-member or multi-member LLC taxed as a partnership, take draws and pay self-employment tax on your profit. If you elect S-corp status, pay yourself a reasonable salary through payroll and take the rest as distributions. Talk to a tax professional before switching to S-corp, because the savings only appear at higher profit levels. Whatever you pick, keep personal and business money in separate accounts so draws are easy to track and your records stay clean.

Frequently Asked Questions

Can I just write myself a check from my LLC?

Yes, if your LLC is taxed as a sole proprietorship or partnership. That check is an owner's draw, and you can take it whenever you want. You pay income tax and self-employment tax on the LLC's profit when you file your personal return.

Do I have to pay myself a salary from my LLC?

Only if your LLC elects S-corp status. In that case, you must pay yourself a reasonable salary through payroll. If your LLC is taxed as a sole proprietorship or partnership, draws are fine and payroll is not required.

What is self-employment tax?

It is the Social Security and Medicare tax that self-employed people pay. The rate is 15.3 percent on your net earnings. You pay it on your LLC profit when you take draws, but S-corp distributions are not subject to it.

Should my LLC elect S-corp status?

Maybe, once your net profit is high enough. S-corp status lets you take distributions that avoid self-employment tax, but it adds payroll costs and paperwork. A tax professional can run the numbers for your situation.

How do I track my owner's draws?

Record every transfer from the business to yourself in your bookkeeping. Label them clearly as owner's draws or distributions. Good records make tax time easier and keep your operating agreement's profit split accurate.