How to Pay Yourself From an LLC: Owner Draws, Salary, and Distributions Explained

The Method Depends on How Your LLC Is Taxed

How you pay yourself from an LLC depends on how your LLC is treated for federal tax purposes. By default, a single-member LLC is a "disregarded entity" — it doesn't have its own tax identity. But you can elect to have your LLC taxed as an S-Corp or C-Corp, which changes everything about how you pay yourself.

Single-Member LLC: Owner's Draw

If your single-member LLC has not elected corporate tax treatment, you pay yourself via an owner's draw. Here's how it works:

• You transfer money from your business bank account to your personal account — this is the draw
• The full amount of your LLC's net profit is taxable to you on Schedule SE, regardless of how much you actually draw
• You don't issue yourself a W-2 and you don't withhold taxes from the draw
• You pay estimated quarterly taxes on your net self-employment income four times a year

The key: you pay self-employment tax (15.3%) on 100% of your net business profit — even on profits you leave in the business. This is why many LLC owners look at S-Corp election once their income grows.

Multi-Member LLC: Guaranteed Payments or Distributions

In a multi-member LLC taxed as a partnership, owners typically receive either guaranteed payments (similar to a salary, reported on Schedule K-1) or distributions of profit. Guaranteed payments are subject to self-employment tax; regular distributions of profit are also generally subject to SE tax for active partners.

LLC Taxed as S-Corp: Required Salary + Distributions

If your LLC has elected S-Corp tax treatment, you must pay yourself a "reasonable salary" as a W-2 employee of your own company. Here's the structure:

1. Pay yourself a reasonable salary. This salary is subject to payroll taxes (FICA) — you pay 7.65% as employee, and the company pays 7.65% as employer.
2. Take remaining profits as distributions. After the salary, remaining net profit can be distributed to you as an owner. Distributions are not subject to payroll taxes — only income tax.

The tax savings come from the spread between what you designate as salary and what you take as distributions. If your business nets $180,000 and you set a defensible $75,000 salary, the $105,000 in distributions avoids FICA taxes — saving approximately $14,837.

What Counts as a "Reasonable Salary"?

The IRS scrutinizes S-Corp owner salaries. Setting your salary too low — or paying $0 — is a classic audit trigger. Reasonable compensation means what you'd pay a third party to do your job.

Relevant factors include:

• Bureau of Labor Statistics wage data for your occupation
• What similar-sized companies pay for equivalent roles
• Your time commitment and actual duties
• The company's gross receipts relative to your compensation

A good rule of thumb: if you'd pay someone $X to do your job, your salary should be in that range. For most owner-operators, this lands between 40–60% of net business income.

LLC Taxed as C-Corp: Salary Only (No Pass-Through)

In a C-Corp, you pay yourself a salary (subject to payroll taxes) and the corporation retains its own profits, which are taxed at the 21% corporate rate. You can take dividends, but qualified dividends are taxed again at 0%, 15%, or 20% (qualified dividend rates) — this is the "double taxation" that makes C-Corps less attractive for most small businesses unless they're retaining significant earnings.

The Right Setup for Most Growing LLCs

For most single-owner LLC operators netting $50,000–$500,000 annually, the optimal structure is:

• LLC for liability protection and operational simplicity
• S-Corp tax election to split income between salary and distributions
• Reasonable salary (documented with comparables) to satisfy the IRS
• Maximized retirement contributions to reduce overall taxable income

A free consultation with our tax team can model the exact numbers for your situation — including what your salary should be, what you'd save, and what the setup costs.