How to Pay Yourself From Your LLC (Without Screwing It Up)
When you're running a small business, figuring out how to get paid can be surprisingly confusing. You’ve formed your LLC. Maybe you’ve opened a business bank account. But now what? Do you just transfer money to yourself? Write a check? Cut yourself a salary?
At Track Town Law, I help Oregon and Idaho business owners understand what actually matters when it comes to legal structure, taxes, and protecting what you’re building. And this question—how to pay yourself—is one of the most common (and most important).
Let’s break it down clearly, without jargon or fluff.
First: How Is Your LLC Taxed?
This is where everything starts. The way you pay yourself depends on how the IRS treats your LLC for tax purposes.
If you’re a single-member LLC and haven’t elected any special tax status, the IRS treats you as a disregarded entity. That means your business income flows right onto your personal tax return—there’s no separate business tax return, and you’re not an employee of your own LLC.
So how do you get paid?
You take what’s called an owner’s draw. Just transfer money from your business bank account to your personal one. That’s it. No payroll, no W-2. You’ll still pay self-employment tax on the net income, so don’t forget to set aside money for taxes—usually 25–30% of your profits, depending on your bracket.
What If You Have a Partner?
If your LLC has more than one member and you haven’t elected S-Corp status, the IRS treats it as a partnership by default.
That means:
The LLC files Form 1065
Each partner gets a K-1 showing their share of profits
Your actual draws don't determine your taxable income—your share of the profits does
You can also build in guaranteed payments—a fixed amount paid to a partner for work they do in the business. It’s taxable income for the recipient and a deductible expense for the LLC. Think of it as the partnership version of a salary—but not technically payroll.
Example: Two partners in a Boise digital agency each take $3,000/month as guaranteed payments, plus a 50/50 split of any additional profits. This works well when both are actively working in the business and want predictable income without giving up equity.
What Changes With an S-Corp Election?
If your LLC has elected to be taxed as an S-Corporation (which we talked about in Episode 6), things work differently.
You are now considered an employee of the business. That means:
You must run payroll
You must pay yourself a reasonable salary
You can then take shareholder distributions (profits) on top of that
Only the salary is subject to employment taxes. That’s where the tax savings come in—but only if you do it right. Underpay yourself and the IRS may audit you. Try to take only distributions and no salary, and you’re begging for a penalty.
Pro tip: Salary runs through a payroll provider. Distributions are equity draws recorded in your accounting software—not payroll.
This setup only makes sense once your net profits are high enough to justify the extra administrative burden (typically $80K+ per year).
What This Looks Like in Real Life
Let’s say you’re a freelance web developer in Eugene. You’ve got a single-member LLC taxed as a sole proprietorship. You can transfer money to your personal account anytime as an owner’s draw. But remember—you’ll pay self-employment tax on your net income, so set aside cash throughout the year.
Or maybe you’re running a family-owned coffee cart in Nampa as a two-member LLC. You file as a partnership. You might set up guaranteed payments if one of you works full-time while the other doesn’t. You can both take draws based on your profit-share. Just make sure it’s consistent with your operating agreement.
What you don’t want is chaos: random transfers, no documentation, blurring personal and business expenses. That’s a recipe for tax issues, liability problems, and partner disputes.
Five Rules to Keep You Out of Trouble
Pay yourself on a schedule
Even if it's informal—weekly or monthly—consistency matters for budgeting and recordkeeping.Don’t drain the business
Only take draws when the business can afford it. Leave room for taxes, operating expenses, and upcoming bills.Document everything
Track draws, guaranteed payments, and distributions separately. Label transactions clearly in your books.Follow the rules for your tax status
If you’ve elected S-Corp status, you must run payroll and file employment tax returns. Don’t shortcut it.Don’t wait to ask for help
If you’re not sure how your LLC should be taxed—or whether you’re paying yourself the right way—talk to a professional. Fixing mistakes later is messy and expensive.
The Bottom Line
How you pay yourself isn’t just a logistics question—it’s a legal and tax question. Done wrong, it can undermine your liability protection, trigger IRS penalties, or lead to an accounting mess that takes months to unwind. Done right, it’s simple, clean, and sustainable.
If you're unsure about your setup—or wondering if an S-Corp election makes sense—this is exactly the kind of thing I help clients with. Track Town Law works with small business owners across Oregon and Idaho to get these foundations right from the start.
Prefer to read? This post mirrors Episode 10 of the Doing Business As podcast. Listen or share the episode anytime—and if you're ready to clarify your own structure, book a consult or explore pricing and services.
Next time, we’re shifting gears into the world of hiring—specifically, what to know before you bring on your first employee.
