LLC Salary Guide: How to Pay Yourself and Stay Tax‑Smart
If you run an LLC, figuring out how much to pay yourself can feel fuzzy. Unlike a corporation, an LLC doesn't have a set payroll rule, but you still need a sensible number for personal budgeting and tax purposes. This guide breaks down what a salary means for an LLC, how to choose the right amount, and the tax impact you’ll face.
First, ask yourself: am I the only member or do I have partners? If you’re the sole owner, you’re a “member‑manager” and the IRS treats most of your earnings as business profit, not wages. Still, many owners draw a regular “salary” to keep personal and business cash separate. That habit helps with budgeting and shows lenders you have steady income.
How to Decide Your LLC Salary
Start with your business cash flow. Look at monthly revenue, expenses, and the profit left after paying bills. A good rule of thumb is to take a percentage of the profit—often 30‑50%—as your personal draw. Adjust the percentage based on how stable your income is. If revenue swings month to month, lean toward the lower end to keep a buffer.
Next, consider market rates. If you could get a similar job elsewhere, use that salary as a benchmark. This helps you stay realistic and can be useful if you ever need to prove income for a loan or mortgage. Write down the amount you plan to take each month and stick to it for at least a quarter. Review the numbers regularly and tweak if your business grows or contracts.
Tax Implications of an LLC Salary
For a single‑member LLC, the money you draw isn’t technically a salary, so you don’t withhold payroll taxes. Instead, you pay self‑employment tax on the profit, which covers Social Security and Medicare. That tax is calculated on your Schedule C when you file your personal return.
If your LLC is taxed as an S‑corp, you must pay yourself a “reasonable salary” that’s subject to payroll taxes. The IRS expects you to run a payroll, with federal and state withholding, and issue a W‑2 at year‑end. Anything you take beyond that salary can be treated as a distribution, which isn’t hit with payroll taxes.Don’t forget quarterly estimated taxes. Whether you’re a solo LLC or an S‑corp, you’ll likely need to send estimated payments to the IRS every four months. Use Form 1040‑ES to calculate the amount based on your expected profit and draw.
Finally, keep clean records. Set up a separate checking account for your LLC, record each draw as an “owner’s distribution” or “salary” depending on your tax setup, and keep receipts for any business expenses you reimburse yourself for. Good bookkeeping makes tax filing smoother and protects you if the IRS ever asks for proof.
Bottom line: treat your LLC pay like any other steady income. Decide on a realistic amount, understand the tax rules for your filing status, and keep solid records. Doing these basics will let you focus on growing your business instead of worrying about unexpected tax surprises.
Wondering if and how you should pay yourself from your LLC? It all boils down to understanding your LLC setup, from the tax implications to practical payment methods. Whether your LLC is treated as a sole proprietorship or a corporation, your payment process varies. Dive into this guide to understand your options, including taking owner draws or setting up a salary. We break down key elements so you can make informed decisions for smooth financial operations.
