How Do I Pay Myself From My LLC?

Starting a Limited Liability Company (LLC) offers a range of advantages for entrepreneurs. Yet, one of the aspects that many find challenging to address is how to correctly compensate themselves. After all, owners have day-to-day financial obligations to meet as they’re building their businesses.

Much like other elements—such as the best time of year to form an LLC—the way in which LLC owners pay themselves depends on a range of factors. These include the LLC’s specific structure, its tax classification, and the type of ownership involved. Understanding the distinctions here is key to ensuring fair compensation, sustainable operations, and regulatory compliance.

We’ve put together this article to provide entrepreneurs with practical insights into this topic. Importantly, as this is a globally relevant subject, it takes an international perspective, rather than being limited to local jurisdictions, ensuring entrepreneurs worldwide can benefit from understanding these rules.

Understanding LLC Owner Compensation

In most cases, LLC owners don’t draw a salary as part of their compensation. If this is the approach entrepreneurs wish to or need to take, they are usually required to elect for the company to be taxed as a corporation. In these instances, the owner can then be treated as an employee and compensated regularly accordingly.

Rather, it is more usual for owners to be compensated through distributions or draws. This is compensation directly linked to the profits generated by the company and is generally recorded against the owner’s equity in the company.

There are also differences in owner compensation approaches between single-member and multi-member LLCs.

Single-member companies are relatively straightforward, with the owner directly taking distributions from the business account, which is then accounted for on their personal tax return.

In multi-member companies, each member is assigned a share of the profits in proportion to their ownership percentage, unless they have agreed to fixed guaranteed payments.

Payment Options for LLC Owners

Owner’s Draw

The most common form of compensation for LLC owners, the owner’s draw involves transferring funds from the business account to the owner’s personal account. This usually results in the owner having a proportionally reduced equity in the business. 

Owner’s draws are not considered wages or salary and are not subject to traditional payroll tax at the time of withdrawal. Rather, the owner will pay income and self-employment taxes on their assigned share of the LLC’s profits, even if they don’t fully withdraw that amount at the time.

It is essential for these draws to be properly documented, ensuring compliance with regulatory and tax frameworks and transparency for internal stakeholders.

Salary (if LLC is Taxed as Corporation)

Some LLCs elect to be taxed as S corporations or C corporations. As a result, this can allow owners to pay themselves as salaried employees through payroll. 

This does not give owners free rein to pay themselves whatever they want. In the U.S., the Internal Revenue Service (IRS) requires that these salaries reflect “reasonable compensation”, which is based on the market standard salary for the work the owner performs.

Alongside a salary, this structure also allows owners to receive dividends or distributions as part of their compensation package. 

Guaranteed Payments (for Multi-Member LLCs)

In multi-member LLCs, guaranteed payments are another potential approach to compensation. This involves each member receiving a fixed sum, regardless of the profits the company generates.

This approach is typically used when members contribute significant services or capital, justifying reliable compensation. Guaranteed payments are considered deductible expenses for the LLC, which reduces its taxable income. Individual recipients declare their payments as ordinary income.

Tax Considerations for Paying Yourself from an LLC

Typically, LLCs are treated as pass-through entities when it comes to taxation. This means companies aren’t taxed at the business level, but rather owners report the profits they receive on their personal tax returns.

In the U.S., this tends to mean that members of LLCs must adhere to self-employment tax responsibilities. This involves paying not just federal income tax but also arranging Social Security and Medicare contributions personally.

In other jurisdictions across the globe, the details here vary. LLC-equivalent structures can face tax withholding requirements or members may be subject to country-specific personal tax payment processes. International entrepreneurs will also need to consider the impact of tax treaties and cross-border reporting requirements that are relevant to their business and country of residence.

How Do I Pay Myself From My Single Member LLC?

The process for taking distributions usually includes the following steps:

• Step one – Allow profits to accumulate until ready to take a draw.
• Step two – Decide how much to withdraw, ensuring sufficient cash remains for business operations.
• Step three – Transfer funds from business account to personal account. This must be labelled clearly as an owner distribution and recorded in the company accounts accordingly.

In terms of tax reporting, the LLC is usually considered a disregarded entity. As a result, owners must report all profits on their personal tax return, regardless of what they withdraw. It is also important to regularly set aside a portion of profits in line with estimated tax amounts, ensuring ongoing compliance and mitigating potential penalties or shortfalls.

These elements are also relevant when exploring what is an annual report​.

How Much Do I Pay Myself From My LLC?

There is no fixed rule on what owners should pay themselves. Rather, this tends to depend on the extent of the company’s profits, cash flow needs, and the future investment required for growth.

A structured approach is usually best. This involves setting up a plan for regularly assessing the generated profits, dividing appropriately between owner payments and reinvestment. For instance, in start-up phases, owners often choose to structure minimal regular draws to leave more capital for growth. Mature companies often see owners able to take frequent, larger draws.

Recordkeeping and Compliance

Accurate and clear records are essential for transparency and regulatory compliance. Firstly, it is vital to keep business and personal finances separate. Owners should open dedicated business bank accounts to track all transactions, ensuring correct recording and reporting.

Alongside this, there must be clear records of any draws, guaranteed payments, and salaries. Besides being essential for effective tax reporting, these efforts make for simpler examinations in the event of audits. Doing so also demonstrates a high degree of transparency to regulatory authorities and stakeholders alike.

Global Perspective on LLC Owner Payments

While LLCs are distinct U.S.-based entities, there are similar or equivalent structures worldwide. This also means that payment methods often differ depending on the jurisdiction, though the core principles are usually recognizable.

For entrepreneurs operating across various jurisdictions, it is also vital to consider cross-border compliance requirements and international tax reporting standards. Tax treaties may be involved to mitigate double taxation, and there is increasing adoption of frameworks for transparency, such as the Organisation for Economic Co-operation and Development (OECD) common reporting standard (CRS).

These aspects can make paying owners legally and logistically complex. As a result, it is essential for entrepreneurs to seek professional guidance from global business formation consulting providers or advisors with experience managing LLCs and their equivalents in international locations.

FAQs

How do I pay myself from my LLC?

Owners are usually paid through distributions or draws when LLCs are pass-through entities. If LLCs are taxed as corporations, owners may also take a salary.

Can I take a salary from my LLC?

Yes, if the LLC elects to be taxed as a corporation. Salaries must also be within reasonable compensation boundaries.

How do I pay myself from my single-member LLC?

Single members typically take distributions directly from company profits, which are reported on the owner’s personal tax return.

How much do I pay myself from my LLC?

The amount depends on the company’s profits and should be balanced against ongoing cash flow needs, reinvestment goals, and tax obligations.

Do I need to pay taxes when I pay myself from my LLC?

Yes. When LLCs are pass-through entities, owners pay income and self-employment taxes on their profit share. Regular estimated payments may also be required.

What’s the difference between an owner’s draw and a salary?

Draws are withdrawals of profits directly from company accounts, which aren’t subject to payroll withholding, but must be clearly recorded for compliance purposes. Salaries are only available under LLC corporate taxation, and are processed as wages and subject to payroll taxation.

References

Mohammed, K, et al. (2024, June). The role of the Common Reporting Standard (CRS) in reducing tax evasion “Applied research on a sample of financial institutions”. ResearchGate. https://www.researchgate.net/publication/381106977_The_role_of_the_Common_Reporting_Standard_CRS_in_reducing_tax_evasion_Applied_research_on_a_sample_of_financial_institutions 

IRS. (2025, May 8). Paying yourself. IRS. https://www.irs.gov/businesses/small-businesses-self-employed/paying-yourself