You can transfer money from your LLC to yourself by taking an owner’s draw or issuing yourself a paycheck, depending on your LLC’s tax classification and whether you’ve elected to be treated as an S Corporation.
One of the most common questions new LLC owners have is how to pay themselves. After all, the goal of running a business is to earn income. But the method you use to transfer money from your LLC to your personal account depends on how your business is taxed and structured. Doing it the right way helps you stay compliant and avoid tax complications.
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1. Owner’s Draw for Single-Member LLCs
If your LLC is a single-member entity taxed as a sole proprietorship (the default classification), you don’t pay yourself a salary. Instead, you take what’s called an owner’s draw.
This means you simply transfer money from your business account to your personal account. There’s no withholding for taxes because you’ll pay self-employment taxes on your income when you file your personal tax return.
Example: If your LLC earns $5,000 this month, you might draw $3,000 for personal use and leave the rest for business expenses or savings. You don’t need to issue yourself a paycheck or use payroll software.
How to do it:
- Transfer funds electronically or write a check from the business account to yourself
- Record the transaction as an owner’s draw in your accounting system
- Set aside money for taxes, since no withholding occurs automatically
2. Distributions for Multi-Member LLCs
If your LLC has more than one owner, it’s taxed as a partnership by default. Owners typically receive distributions based on the ownership percentages outlined in your operating agreement.
Like a single-member LLC, these are not wages and don’t go through payroll. Each member receives their share of profits, reports it on a Schedule K-1, and pays taxes individually.
3. Salary for LLCs Electing S Corp Status
If your LLC has elected to be taxed as an S Corporation, the IRS requires that you pay yourself a reasonable salary if you actively work in the business. This means:
- You must run payroll and withhold payroll taxes
- The salary is a business expense and deductible by the LLC
- You can also take additional profits as shareholder distributions (which are not subject to self-employment tax)
This structure allows you to potentially save on self-employment taxes, but it comes with more compliance and paperwork. You’ll need a payroll system, regular tax filings, and potentially a bookkeeper or accountant to manage it properly.
4. Keep Business and Personal Finances Separate
Regardless of how your LLC is taxed, you should always:
- Use a separate business bank account
- Never pay personal bills directly from the LLC account
- Document every transfer properly
Mixing personal and business funds, known as commingling, can jeopardize your liability protection and cause problems during tax season or audits.
5. How Much Should You Pay Yourself?
There’s no fixed rule for how much to pay yourself, but here are some guidelines:
- Leave enough in the business to cover upcoming expenses
- Pay yourself consistently (weekly, biweekly, or monthly)
- In an S Corp, ensure your salary is “reasonable” per IRS standards
- Work with a tax advisor to estimate your self-employment tax and quarterly payments
It’s wise to establish a regular payment routine and build savings within your LLC for taxes, emergencies, and future investments.
6. Tax Considerations
When you pay yourself from an LLC, taxes depend on the structure:
- Sole proprietorship (single-member LLC): Pay self-employment tax on profits. No tax withholding on draws.
- Partnership (multi-member LLC): Each member reports their share of profit and pays tax individually.
- S Corp: Pay yourself a salary subject to payroll taxes, plus additional distributions that are taxed differently.
If you’re unsure how your LLC is taxed, check your IRS documentation or ask your accountant. Mistakes can be expensive.
Transferring money from your LLC to yourself is simple if you follow the rules for your specific tax structure. Whether you take an owner’s draw, a distribution, or a salary, keeping your records clean and separating business from personal accounts will help protect your liability status and simplify tax time. When in doubt, consult with a CPA to make sure you’re doing it correctly and tax efficiently.
