You started an LLC, the money is coming in — so how do you actually pay yourself? It is one of the most common questions new owners ask, and the answer depends on how your LLC is taxed. Here is how an owner's draw works, how it is taxed, and when it is worth changing the setup.
How do I pay myself from an LLC?
For most single-member LLCs, you pay yourself with an owner's draw — simply transferring money from the business account to your personal account. There is no need to run yourself through payroll, because a standard LLC is not taxed as a separate entity from you. You take draws as you need them, ideally on a consistent schedule, leaving enough in the business to cover expenses and taxes.
- Owner's draw: move money from business to personal; it is not a salary and no payroll tax is withheld at the time.
- Keep accounts separate: a clean business account and a personal account make draws clear and your books accurate.
- Set aside for taxes: because nothing is withheld, you are responsible for your own tax on the profit.
Is an owner's draw taxed?
Yes — but you are taxed on the business's profit, not on the draws themselves. This surprises a lot of new owners. With a standard LLC, you owe income tax and self-employment tax on your share of the net profit for the year, whether or not you actually drew that money out. Taking a smaller draw does not lower your tax, and taking a larger one does not raise it — the profit is what is taxed. That is why setting money aside for taxes as you go is so important.
Do I pay self-employment tax on LLC income?
Generally yes — a standard LLC owner pays self-employment tax on the business's net profit. Self-employment tax covers Social Security and Medicare, and for an active owner it applies to the full profit. This is the single biggest tax cost for many LLC owners, and it is the reason some eventually look at an S-corp election, which can change how much of the income is subject to those taxes.
When should an LLC elect S-corp status?
Once the profit is high enough that payroll-tax savings outweigh the added cost and complexity. An LLC can elect to be taxed as an S corporation, after which the owner takes a reasonable salary (subject to payroll tax) plus distributions (generally not subject to it). For a consistently profitable business, that split can save real money — but it adds payroll, a separate return, and the requirement to pay yourself a defensible salary. There is a rough profit level where it starts to make sense, and it is worth modeling rather than guessing. Our Fractional CFO & Growth team helps owners decide when the switch pays off and how much salary to set.
How much should I leave in the business?
Enough to cover upcoming expenses, taxes, and a cash cushion before you take a draw. A simple approach is to pay yourself a steady, modest draw rather than sweeping the account every time it looks full. Keep a reserve for slow months and a separate set-aside for taxes — many owners move a percentage of each deposit into a tax savings account. Paying yourself consistently, instead of in unpredictable chunks, also makes your personal budgeting and your books far easier.
How is paying yourself different in a multi-member LLC?
In a multi-member LLC, owners typically take distributions of profit and, in some cases, guaranteed payments. A multi-member LLC is taxed as a partnership by default, so each owner is taxed on their share of the profit according to the operating agreement, whether or not it is distributed. Owners generally cannot be W-2 employees of the LLC; instead they take draws against their share, and the partnership can make guaranteed payments for services or capital that act somewhat like a salary. The mechanics and the tax treatment get more involved than a single-member LLC, so a multi-member LLC is a good place to have an advisor help set up how the partners get paid.
Paying yourself the right way keeps your books clean and your taxes predictable. If you want help setting it up — or deciding whether an S-corp election is worth it — we are glad to help.