How do you pay yourself in an LLC?

Looking to find out how you should pay yourself through your LLC company? The short answer is that it depends on the type of LLC company you have.

We asked the Start a Business Hub community for their thoughts and how you can pay yourself through an LLC. Here's what they said:

The answer depends on why tax form your Limited Liability Company takes. LLCs are chameleons, in the sense they may be sole Proprietorships, called disregarded entities for tax purposes, if there is only one member. That means income is reported on Schedule C of Form 1040. The profits taken or even left in the business are taxed both as Self-Employment Tax (Social Security and Medicare) and Income Tax.

Owners of a disregarded income simply take draws by withdrawing cash, transferring money from the LLC to their personal bank accounts, or paying personal expenses from the business. The last method is not generally advisable, as the IRS might view the funds as commingled and begin to question all expenditures, as possibly being personal and not business-related.

If the LLC has more than one member, the default tax form of the entity would be as a partnership. Similar to a disregarded entity, a partnership may pay the partners in the form of draws/withdrawals or as what are called Guaranteed Payments. Without going into an explanation of mechanisms of reporting partners’ respective share of profits, the methods of payments are similar to those of disregarded entity.

Another tax form is for an LLC to elect to be taxed as an S Corporation. S Corporations are a hybrid entity that recognizes a member may be both an employee of the corporation and a shareholder. Consequently, they may be paid W-2 wages as compensation for their work and be allocated all remaining profits as a return on equity. Those profits may be maintained for future use by the corporation or taken as distributions.

Obviously, there is a lot more to be considered with all these alternatives, as there are tax and business management issues that need to be considered. Accordingly, an LLC member/owner is best advised to consult with their CPA.

Mark Schwartz

A single member LLC or LLC taxed as a partnership will generally pay the owner via a distribution. The distribution most commonly comes from profits of the LLC. Since generally all profits of the LLC are taxed, a distribution will not be subject to additional taxes. There are a few exceptions to this, especially when there are distributions in excess of profits or contributions. A member of an LLC can also receive a guaranteed payment for certain functions. There are several rules that surround guaranteed payments.

An LLC that elects to be taxed as a C corporation would pay the owner a salary.

An LLC that elects to be taxed as an S corporation would also pay the owner a salary, but would also be able to make distributions, similar to a SMLLC or partnership. There are also several rules surrounding this.

It would be wise to engage a local CPA to assist.

Bryan Bays

There are essentially 5 classifications of business entities.

1. Corporation

2. Partnership

3. Multi-member Limited Liability Company

4. Single-member Limited Liability Company

5. Business trust

If you are Single Member LLC (treated as a disregarded entity by the IRS for federal income tax purposes) you would simply pay yourself by drawing shekels from the LLC in the form of distributions,ie, you’d write a check to yourself drawn off the LLC account.

Be very careful not to pay for personal items or expenses directly from your LLC account, nor commingle business funds with personal funds. These are the two single most important factors a court considers in allowing your creditors to disallow the LLC and levy on your personal assets.

Lastly, make certain you properly file the Articles of Organization, Operating Agreement and Annual Reports as well as pay any business entity tax to the Secretary of State.

John Tatoian

There are two ways a business owner can pay himself or herself from an LLC. One way is by taking a distribution directly from the LLC. The other way, if the LLC has elected to be an S-corporation with the IRS, is for the LLC owner to receive a salary from the business, i.e. owners pay.

Jonathan Krems

As you can see, there are a number of ways an owner of an LLC can pay himself or herself depending on the nature of the LLC.

The general advise here seems to be that you should always consult a professional. Either a CPA or an attorney depending on what it is you're looking to do.

Hopefully this helps you to figure out how you can pay yourself through your LLC entity.

Cite/Link to This Article

  • Stewart, Suzy. "How do you pay yourself in an LLC?". One Brick Court. Accessed on October 21, 2021. https://onebrickcourt.com/how-do-you-pay-yourself-in-an-llc/.

  • Stewart, Suzy. "How do you pay yourself in an LLC?". One Brick Court, https://onebrickcourt.com/how-do-you-pay-yourself-in-an-llc/. Accessed 21 October, 2021.

  • Stewart, Suzy. How do you pay yourself in an LLC?. One Brick Court. Retrieved from https://onebrickcourt.com/how-do-you-pay-yourself-in-an-llc/.