One of the most common questions LLC owners have is: “How do I pay myself from my LLC without making a tax mistake?”
Whether you’re running a single-member LLC, multi-member LLC, or an LLC taxed as an S-Corp, the way you pay yourself impacts your taxes, business finances, and legal compliance. Doing it incorrectly can lead to IRS penalties, unexpected tax bills, or legal headaches. The good news? Paying yourself from an LLC isn’t complicated once you understand the rules.
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How Your LLC’s Tax Classification Affects How You Pay Yourself
The way you pay yourself depends on how your LLC is taxed. LLCs offer flexible tax classifications, and each option has different rules for taking money out of the business.
Common LLC Tax Classifications:
- Single-Member LLC (Default Taxation): The IRS treats it as a sole proprietorship.
- Multi-Member LLC (Default Taxation): The IRS treats it as a partnership.
- LLC Taxed as an S-Corp: The LLC elects S-Corporation taxation for tax savings.
- LLC Taxed as a C-Corp: The LLC is taxed as a separate corporation.
Each classification affects whether you take an owner’s draw, salary, or distributions—and how those payments are taxed.
Paying Yourself in a Single-Member LLC
A single-member LLC (SMLLC) is the simplest business structure for LLC owners. The IRS considers it a “disregarded entity,” meaning the business income is reported on your personal tax return (Form 1040, Schedule C).
How to Pay Yourself in a Single-Member LLC:
- Take an Owner’s Draw—not a salary.
- Transfer money from your business bank account to your personal account.
- No payroll taxes are withheld (but you still owe self-employment taxes).
💡 Important: The IRS does not consider an owner’s draw to be a salary, so you don’t withhold payroll taxes. Instead, you pay self-employment taxes (15.3%) on your total business profit.
How Taxes Work for a Single-Member LLC:
- All business profits are reported on your personal tax return.
- You pay self-employment tax (15.3%) on total profits (not just what you withdraw).
- You must file quarterly estimated taxes (Form 1040-ES) to avoid penalties.
Best Practice: Keep your LLC’s finances separate by using a business bank account and only transferring money as needed.
Paying Yourself in a Multi-Member LLC
A multi-member LLC is taxed as a partnership by default. Instead of taking a salary, owners receive distributions based on their ownership percentage.
How to Pay Yourself in a Multi-Member LLC:
- Owners take partner distributions, not salaries.
- Payments are recorded in IRS Form 1065 and Schedule K-1.
- No payroll taxes are withheld (but partners still owe self-employment taxes).
How Taxes Work for a Multi-Member LLC:
- The LLC files an informational tax return (Form 1065).
- Each member receives a Schedule K-1, reporting their share of profits.
- Each member pays self-employment tax (15.3%) on their share of business income.
Best Practice: Use a partnership agreement to define how profits are divided to avoid disputes.
Paying Yourself in an LLC Taxed as an S-Corp
LLCs that elect S-Corporation taxation can reduce self-employment taxes by splitting owner payments into a reasonable salary and distributions.
How to Pay Yourself in an LLC Taxed as an S-Corp:
- Take a reasonable salary (required by the IRS).
- Take additional income as distributions (dividends).
- Salary is subject to payroll taxes (Social Security & Medicare), but distributions are not.
How Taxes Work for an LLC Taxed as an S-Corp:
- You pay FICA payroll taxes (15.3%) only on your salary.
- Distributions are not subject to self-employment taxes.
- The LLC must file Form 1120-S and issue a W-2 to the owner.
💡 Why Choose S-Corp Taxation? If your LLC earns more than $50,000 per year, this strategy can save thousands in self-employment taxes.
Best Practice: Work with an accountant to set a “reasonable salary” and ensure IRS compliance.
Paying Yourself in an LLC Taxed as a C-Corp
An LLC that elects C-Corporation taxation functions like a corporation and pays owners as employees.
How to Pay Yourself in an LLC Taxed as a C-Corp:
- Take a salary (W-2 income).
- Take additional income as dividends (if profits allow).
How Taxes Work for an LLC Taxed as a C-Corp:
- The business pays corporate income tax (21%).
- The owner pays personal income tax on salary and dividends (double taxation).
- The LLC files Form 1120 (corporate tax return).
💡 Best for: Large LLCs that plan to reinvest profits or attract investors.
Common Mistakes to Avoid When Paying Yourself
Messing up how you pay yourself can trigger IRS audits, tax penalties, and financial headaches. Here are some mistakes to avoid:
- 💥 Mixing business and personal finances—always use separate bank accounts.
- 💥 Paying yourself a salary in a single-member LLC (use an owner’s draw instead).
- 💥 Skipping self-employment tax payments (pay quarterly estimated taxes).
- 💥 Setting an unreasonably low salary in an S-Corp (this raises red flags with the IRS).
Paying Yourself the Right Way
Choosing the right method to pay yourself from your LLC is crucial for avoiding tax mistakes and keeping your business finances organized and compliant.
Quick Recap:
- 📌 Single-Member LLCs – Take owner’s draws (no salary, pay self-employment tax).
- 📌 Multi-Member LLCs – Take distributions via Schedule K-1.
- 📌 S-Corp LLCs – Pay yourself a salary + distributions (to reduce self-employment taxes).
- 📌 C-Corp LLCs – Pay a salary + dividends (subject to corporate tax rules).
By structuring your payments correctly, you can minimize tax liabilities, stay IRS-compliant, and keep more of your hard-earned money.
