The right amount to pay yourself from your LLC depends on your business profits, tax obligations, reinvestment needs, and personal financial requirements. There’s no one-size-fits-all number, but you should strike a balance between rewarding yourself and keeping your business healthy.
LLC owners enjoy flexibility when it comes to compensation, but with that freedom comes the responsibility of making smart decisions. Pay yourself too little, and your personal finances might suffer. Pay yourself too much, and you may drain your business of resources it needs to grow or weather lean months. The key is knowing how to calculate an appropriate amount based on your LLC’s performance and your personal goals.
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1. Understand How Your LLC Is Taxed
Before calculating your ideal pay, you need to know how your LLC is taxed. This affects both how you take money out and how much of it will go toward taxes.
- Single-member LLC: You’re taxed as a sole proprietor by default. You take owner’s draws-not a paycheck-and pay self-employment tax on net business profits.
- Multi-member LLC: You’re taxed as a partnership. Members receive distributions based on ownership percentages and pay self-employment tax on their share of profits.
- LLC taxed as an S Corporation: You must pay yourself a reasonable salary through payroll and can also take distributions from remaining profits, which are not subject to self-employment tax.
2. Cover Your Personal Financial Needs
Start by asking how much you need to live on. List out your monthly expenses-rent, utilities, groceries, insurance, savings, etc.-and determine your personal budget.
If your LLC can support it, that number becomes a good baseline for monthly payments. If your business can’t support your full lifestyle yet, you may need to reduce draws or supplement your income until it can.
3. Keep Enough Cash in the Business
Before pulling out all available profits, consider how much money your LLC needs to operate smoothly. You’ll want to leave enough cash to cover:
- Fixed monthly expenses (like rent, software, payroll)
- Upcoming tax bills (income, sales, payroll, etc.)
- Emergency reserves (ideally 1–3 months of operating costs)
- Planned investments (like marketing, equipment, or hiring)
A healthy business should be able to pay you and itself. If you take out too much and leave your business underfunded, you might struggle to cover basic costs or miss growth opportunities.
4. Set a Consistent, Predictable Pay Schedule
Even if your LLC income fluctuates, setting a consistent pay schedule can help you plan and avoid impulsive withdrawals. You might decide to:
- Pay yourself weekly, biweekly, or monthly
- Base the amount on average monthly profit
- Review and adjust quarterly based on performance
If your income is seasonal or unstable, consider paying yourself a modest, fixed amount regularly, and take additional draws when profits exceed expectations.
5. For S Corps: What’s a Reasonable Salary?
If your LLC is taxed as an S Corporation, you’re required to pay yourself a reasonable salary if you work in the business. The IRS defines this based on your role, industry norms, and business income-not on what’s left over after expenses.
Factors that help determine a reasonable salary include:
- Your job duties and responsibilities
- What others in similar roles are paid
- How much profit the business earns
- How much time you spend working in the business
Failing to pay yourself a reasonable salary (or paying yourself only through distributions) can lead to IRS penalties and back taxes.
6. Don’t Forget About Taxes
How much you take home isn’t the same as how much you withdraw. Whether you’re taking owner’s draws or earning a salary, some portion of your LLC income will go toward taxes.
- Sole proprietors and partners: Pay self-employment tax (15.3%) plus income tax on profits
- S Corp owners: Pay payroll taxes on salary and income tax on both salary and distributions
Set aside a portion-often 25% to 30%-of each payment to cover taxes. Consider working with a tax advisor or using accounting software that helps you project tax liabilities.
There’s no magic formula for how much you should pay yourself from your LLC-but the right amount is one that meets your personal needs, keeps your business financially healthy, and leaves room for taxes. Review your numbers regularly, especially as profits change. Pay yourself enough to stay motivated and stable, but never so much that you jeopardize your business’s future.
