You can pay yourself extra money from your LLC, but how you do it depends on your tax classification. In most cases, LLC owners take additional profits as draws or distributions-not as formal bonuses.
Business is going well, and you’d like to reward yourself for the effort. The idea of a “bonus” is appealing, but how that payment is handled-and what it’s called-depends on how your LLC is taxed and whether you are on payroll. LLCs don’t typically pay bonuses the way corporations do, but you can still take more money from the business legally and appropriately.
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1. If You’re a Single-Member LLC
Single-member LLCs are taxed by default as sole proprietorships. That means you don’t receive a salary or payroll bonus. Instead, you pay yourself by taking owner’s draws, which are non-taxable transfers from your business bank account to your personal account.
If you want to give yourself extra money-whether once or regularly-you simply take a larger draw. There’s no need to classify it as a bonus. The IRS doesn’t tax you when the draw happens; instead, you pay self-employment tax on the LLC’s profits when you file your personal tax return.
How to do it:
- Make a transfer from your LLC bank account to your personal account
- Record it as an owner’s draw in your accounting software
- Be sure to set aside funds for taxes on your overall profit
2. If You’re a Multi-Member LLC
Multi-member LLCs are typically taxed as partnerships. Owners receive distributions according to the percentage of ownership outlined in the operating agreement.
If the LLC has excess profits and all members agree, you can distribute more than usual-effectively giving yourself a bonus. However, the payment must still follow the ownership rules and be distributed equitably unless otherwise agreed in writing.
Each member will receive a Schedule K-1 reflecting their share of the profits, including any bonus-like distributions.
3. If You’ve Elected S Corporation Tax Treatment
If your LLC has elected to be taxed as an S Corporation, things change. In this case, you must pay yourself a reasonable salary through payroll if you actively work in the business. Bonuses are allowed-but they must be processed through the same payroll system as your regular salary.
This means:
- Bonuses are treated as W-2 income
- You must withhold payroll taxes on bonus payments
- The LLC must pay the employer portion of taxes
Many S Corp owners pay themselves a regular salary and then take additional profits as distributions-which are not subject to self-employment tax. These distributions can serve the same purpose as a bonus, without the payroll hassle.
Pro tip:
Large or frequent bonuses in an S Corp may raise red flags with the IRS if they suggest your base salary is unreasonably low. Keep compensation aligned with industry standards.
4. Avoiding Mistakes: Don’t Misclassify Personal Withdrawals
LLC owners often assume they can just take money whenever they want-and while that’s mostly true for single-member LLCs, you still need to record everything correctly. You should never call something a bonus if it’s not actually being run through payroll.
Calling a draw a “bonus” could create confusion or raise issues in an audit if the payment wasn’t taxed properly. Use accurate terms in your records to avoid misunderstandings.
5. Plan Ahead for Larger Withdrawals
If you want to pay yourself a larger amount-whether you think of it as a bonus or just an extra draw-make sure the LLC can afford it. You should:
- Review your cash flow and upcoming expenses
- Leave enough in the business to cover taxes and bills
- Track the payment in your bookkeeping system
Establishing a regular compensation routine helps you avoid draining the business account during lean months or overspending without realizing it.
LLC owners can absolutely take extra money out of the business-but whether it’s called a draw, distribution, or bonus depends on how the LLC is taxed. For most owners, it’s as simple as making a larger transfer and recording it properly. If you’ve elected S Corp taxation, you can issue yourself a bonus through payroll. Either way, keep your records clean, follow IRS rules, and enjoy the rewards of your hard work-responsibly.
