How do I pay myself from my LLC?
Asked about 4,230 times a month on Google, across about fifty phrasings: how to pay yourself from an LLC, how much to pay yourself, how a single-member owner gets paid. It tends to arrive the first time there is real money in the business account.
The question sounds like payroll, and for most LLC owners it is not. The answer depends less on the LLC than on how the IRS classifies it, and most owners never chose that classification on purpose.
It also comes from owners who have been taking money out all year and have just noticed that nothing was withheld from any of it.
Asked about 4,230 times a month on Google, across about fifty phrasings.
@Andresplatts·
For most LLC owners, you do not pay yourself a salary. You move money from the LLC's account to your own, and you are taxed on the LLC's profit, not on the amount you moved. Which rule applies depends on how the IRS classifies the LLC.
A single-member LLC is a disregarded entity unless it elected otherwise. Its profit goes on your own Form 1040, usually on Schedule C, and the IRS says the owner owes self-employment tax on it in the same manner as a sole proprietor. Taking the money out, usually called an owner's draw, is not a separate taxable event and not a business expense.
An LLC with two or more members is a partnership by default. The IRS is direct about this: partners are not employees and should not be issued a Form W-2. They are paid through distributions or guaranteed payments, reported on the Schedule K-1 that comes from the LLC's Form 1065.
Only if the LLC has elected to be taxed as a corporation does a working owner become its employee, paid wages through payroll. The IRS expects that pay to be reasonable for the services provided, and it can adjust both returns if an officer is underpaid.
In the first two cases nothing is withheld from what you take, so the tax is paid through estimated payments. The IRS divides the year into four payment periods and can charge a penalty for paying too little in any of them, even if you end up owed a refund. Self-employment tax is 15.3%, 12.4% for Social Security and 2.9% for Medicare, once net earnings reach $400.
If you live outside the US and own the LLC alone, it is still disregarded, but the IRS treats it as a corporation for one purpose: reporting transactions with you. Money you put in and money you take out are reportable on Form 5472, filed with a pro forma Form 1120, for every year they happen.
