How to Pay Yourself From an LLC
If your LLC is taxed as a disregarded entity or partnership, you pay yourself by taking draws and there is no payroll to run. Elect S corporation taxation and everything changes: you become a waging employer who must run payroll and pay yourself a reasonable salary first.
The default rules
A single-member LLC taxed as a sole proprietorship takes owner draws - transfers from business to personal account, recorded as equity movements, not expenses. No withholding, no unemployment account, no payroll filings. Multi-member LLCs distribute profits per the operating agreement on the same principle.
When payroll arrives
| Taxation | How owners take money | Payroll needed? |
|---|---|---|
| Disregarded entity | Draws | No |
| Partnership | Guaranteed payments / distributions | Generally no |
| S corporation election | Reasonable salary plus distributions | Yes, for the salary |
| C corporation | Wages plus dividends | Yes, for wages |
Why owners elect S corp treatment
Distributions avoid self-employment tax; salary does not. Taking a modest reasonable salary and distributing the rest can reduce combined tax - provided the salary genuinely reflects market compensation for the role. Underpaying yourself on paper to maximize distributions is the pattern examinations target.
The practical checklist
- Confirm current taxation with your accountant before changing anything.
- If electing S corp: register as employer, choose a payroll schedule, document the salary rationale.
- Keep draws and salary in separate bookkeeping categories.
Running payroll for yourself through a service or PEO adds discipline cheaply - see PEOs for small business and the cost picture in per-employee pricing.
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Frequently asked
Can I just move money whenever I want?
As a disregarded entity or partnership, yes - draws are flexible. Once S corp elected, salary must run through payroll on a consistent schedule.
What makes a salary 'reasonable'?
Compensation comparable to what similar businesses pay for equivalent work, considering duties, experience and time committed. Document the comparison.
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