You will report all profits on Schedule C of your tax return, not just your draws. You’ll also be required to pay self-employment taxes on the profit.
How to Pay Yourself From an LLC
Written by: Carolyn Young
Carolyn Young has over 25 years of experience in business in various roles, including bank management, marketing management, and business education.
Reviewed by: Sarah Ruddle
For over 15 years, Sarah Ruddle has been a noteworthy leader in the business and nonprofit world.
Updated on July 18, 2024
When your business is a limited liability company (LLC), revenue goes to the LLC, not you. But you’ll need to get paid, of course, to make a living.
There are many ways to pay yourself from an LLC, depending on how your LLC is taxed. This handy guide explains how to get it done.
How LLC Members are Paid
How you get paid as an LLC member depends on your chosen tax status.
If the LLC is taxed as a Sole Proprietorship or Partnership
If you’re the only member of an LLC and choose the default tax status, you can receive all the profits. If the company makes $50,000, for instance, you can receive $50,000.
You can receive distributions all at once or take them at intervals. Then, you write a check from the business bank account to pay your distributions. You’ll record the withdrawal for accounting purposes as an owner’s draw.
In a multi-member LLC taxed as a partnership, members of the LLC can also take distributions from the profits. Distribution amounts are usually based on each member’s ownership percentage. For example, if two members own 50% and the business makes $50,000, each member draws $25,000.
A multi-member LLC taxed as a partnership must file form 1065 with the IRS, which is the Return of Partnership Income. Attached will be K-1 forms for each member showing their share of the business profits. Form 1065 is for reporting purposes only, as the LLC does not pay taxes.
Each member pays taxes on their share of profit based on Schedule C of their tax return and self-employment taxes on the profits.
If the LLC Is Taxed as an S-Corp or a C-Corp
If your LLC is taxed as a corporation, you cannot be paid in distributions from your LLC. Instead, you must be paid as an employee of the LLC.
You must have an active role in the LLC to be an employee, so if you’re not involved in the business’s operations, you cannot receive a salary or be an employee. In addition, if your LLC has more than one member and is active in the business, all members must receive a salary.
To become an employee, you’ll file a W-4 form. Then you can pay yourself a salary and receive a W-2 for tax purposes. Income tax and payroll taxes must be withheld from your salary checks.
The wages you’re paid will be an expense of the LLC, deducted from profits for accounting purposes. Remember that IRS rules state that salaries must be within industry norms for your role.
If there are profits left after your salary, you can take part of the LLC profits as a shareholder distribution if you have S-Corp status or a dividend if you have C-Corp status.