As the owner of an LLC, there are several methods you can use to pay yourself from the company, depending on various factors such as your business structure, tax considerations, and personal financial needs.

Here are some common ways to pay yourself from your LLC…

1. Owner’s Draw (Distribution)
   • Description – An owner’s draw, also known as a distribution, is a withdrawal of funds from the LLC’s profits that the owner takes for personal use. It represents your share of the LLC’s earnings and is not considered salary or wages.
   • Process – You can withdraw funds from the LLC’s bank account for personal use at any time, typically through checks, electronic transfers, or cash withdrawals.
   • Tax Treatment – Owner’s draws are not subject to payroll taxes (Social Security and Medicare taxes) or withholding taxes. Instead, the income is reported on your tax return as self-employment income and taxed at your tax rate.
2. Salary (Wage)
   • Description – If your LLC is taxed as an S Corporation or you have elected to receive a salary as an LLC member, you can pay yourself a regular salary or wage for the work you perform for the company.
   • Process – Establish a formal employment agreement or payroll arrangement with the LLC, specifying your salary, pay frequency, and other terms. You can then receive salary payments through the company’s payroll system.
   • Tax Treatment – Salary payments are subject to payroll taxes (Social Security and Medicare taxes) and income tax withholding. The LLC must withhold payroll taxes from your salary payments and remit them to the IRS and state tax authorities. You will receive a Form W-2 at the end of the year reporting your salary income.
3. Profit Distributions (Dividends)
   • Description – If your LLC is taxed as a corporation (C Corporation) or elects to distribute profits to members, you may receive profit distributions or dividends in addition to or instead of a salary.
   • Process – Profit distributions are typically determined based on your ownership percentage in the LLC and the company’s profitability. They can be distributed periodically or at the discretion of the LLC’s management.
   • Tax Treatment – Profit distributions may be subject to dividend taxes for C Corporations or pass-through to individual members and reported on their tax returns. The tax treatment of dividends varies depending on your tax situation and applicable tax laws.
4. Reimbursement of Business Expenses
   • Description – If you incur business-related expenses on behalf of the LLC, you can be reimbursed for these expenses by the company.
   • Process – Keep detailed records of business expenses, including receipts and documentation. Submit expense reports to the LLC for reimbursement, and the company can reimburse you for these expenses directly or through a regular expense reimbursement process.
   • Tax Treatment – Reimbursements for legitimate business expenses are not considered income and are not subject to taxation.  You should maintain proper documentation to support the business nature of the expenses.

Before determining how to pay yourself from your LLC, consider consulting with a tax advisor or accountant to understand the tax implications, legal requirements, and optimal compensation structure based on your specific circumstances and goals. They can provide personalized guidance and help you develop a strategy that aligns with your financial objectives and maximizes tax efficiency.