Key takeaways
- Most LLC owners pay themselves through an owner's draw, not a salary.
- The exception is LLCs that have elected to be taxed as corporations. If you own one of those, you will receive a salary via payroll.
- Paying yourself correctly can help your business stay compliant and avoid tax issues.
As an owner of a limited liability company (LLC) you'll generally pay yourself through an owner's draw. This method of payment essentially transfers a portion of the business's cash reserves to you for personal use. For multi-member LLCs, these draws are divided among the partners.
The rules are different if the LLC is taxed as a corporation. In this case, you also have to take a salary that meets certain requirements in addition to any distributions received.
What is an LLC?
An LLC combines some of the most attractive features of corporations and partnerships. Like corporations, all types of LLCs provide limited protection against personal liability. Business profits and losses are typically reported on your personal income tax return rather than a business tax return, and no annual meetings are required.
Specific laws vary by state, but in general LLC owners are called members. There can be as many members in your business as you like.
Types of LLCs include:
- Single-member LLCs. These have only one member. By default, the IRS treats a single-member LLC as a sole proprietorship for tax purposes.
- Multi-member LLCs. These have more than one member. By default, the IRS treats a multi-member LLC as a partnership for tax purposes, unless otherwise requested.
- LLCs taxed as corporations. LLCs may elect to be taxed as corporations. To make that election, the business needs to file Form 8832, Entity Classification Election, with the IRS.
How do I pay myself if I own an LLC?
How you pay yourself depends on whether the LLC is being treated as a sole proprietorship, partnership or corporation for tax purposes.
Single-member LLCs: owner's draw
The IRS views single-member LLCs as “disregarded entities,” meaning that for tax purposes the owner and the business are one and the same. Specifically, your LLC profits are considered personal income rather than business income, just like a sole proprietorship.
Rather than taking a conventional salary, single-member LLC owners pay themselves through what’s known as an owner’s draw. The amount and frequency of these draws is up to you, but it's ideal to leave enough funds in the business account to operate and grow the LLC.
Multi-member LLCs: owner's draws and guaranteed payments
Multi-member LLCs, classified as partnerships, are treated as “pass-through entities” by the IRS. This means that although business income must be officially reported, the business itself isn’t taxed. Instead, each member’s share of the profits (as determined in the business’s LLC operating agreement) is treated as their personal income.
Like single-member LLCs, multi-member LLC members also pay themselves through the owner’s draw method. They can each draw as much or as little of their shares as they choose, as long as sufficient funds remain on hand for day-to-day business expenses and growth.
If financial reserves permit, these LLCs can set up guaranteed payments for members. Similar to salaries, guaranteed payments are paid out regardless of business performance.
LLCs taxed as corporations: salary and distributions
If an LLC has opted to be treated as an S corporation or C corporation for tax purposes, members (now also known as shareholders) aren’t allowed to take owner’s draws.
Instead, they're considered employees and must pay themselves a set salary on the company’s regular payroll with taxes withheld. This can be done by using payroll software or outsourcing the work to professionals.
As an owner, you can determine your salary amount, but that figure must meet the requirements for “reasonable compensation.” The IRS defines this as “the value that would ordinarily be paid for like services by like enterprises under like circumstances.”
In addition to your salary, you can also elect to pay yourself distributions or dividends, which are distributions that come out of a business's profits. Distributions and dividends don't need to have payroll taxes withheld, but are still considered taxable income.
» MORE: LLC vs. corporation
How does an owner’s draw work?
If you’re a single-member LLC, or have check-writing privileges as a multi-member LLC member, payday involves issuing a check or direct deposit to yourself and keeping good bookkeeping records.
Paying yourself in cash is never recommended because it leaves no paper trail, increases the odds of an error and may be a red flag to the IRS.
How are owner’s draws taxed?
With the owner’s draw method, there is no tax withholding. However, an owner’s draw is still taxable income that you have to report to the IRS, and all required taxes on this income will be due at tax time. To soften the impact, make quarterly estimated income tax payments throughout the year via Form 1040-ES.
Here’s how to handle your LLC’s tax obligations:
- If you have a single-member LLC: The business doesn’t file a separate IRS return. Instead, report the LLC profits and losses on Schedule C of your personal tax return. You’ll owe income tax on the full amount of the LLC’s profits, whether or not you’ve drawn the entire amount, plus self-employment tax (for Social Security and Medicare).
- If you have a multi-member LLC: As a partnership, your business doesn’t file a separate business tax return. Instead, each member files their percentage of the LLC’s profits and losses on their individual tax returns. Members each owe income tax on 100% of their profit share, whether or not they’ve drawn that entire amount — and they also must pay self-employment tax. Additionally, multi-member LLCs are required to file IRS Form 1065, and each member must file a Schedule K-1.
How taxes work for LLCs taxed as corporations
Because owners who work at the company receive a standard salary, all required taxes are withheld before paychecks are issued.
LLCs taxed as C corporations must file a business tax return. This means that you could be taxed at the business level and again at the level of personal income. LLCs taxed as S corporations don't pay corporate taxes; instead, they pass income directly to the owners.
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- 1. Internal Revenue Service. Exempt organization annual reporting requirements: Meaning of "reasonable" compensation. Accessed Apr 14, 2026.
