How should I pay myself from my LLC?

How an LLC owner pays themselves depends on how the LLC is taxed. A single-member LLC taxed as a sole proprietorship pays the owner through draws, and the whole profit is taxed whether or not it is drawn. An LLC that has elected S-corporation status pays a reasonable salary through payroll and takes the rest as distributions. Partners in a multi-member LLC take guaranteed payments and distributions.

Key points

How an LLC owner is paid depends entirely on how the LLC is taxed: as a disregarded entity, an S-corporation, a partnership, or a C-corporation.
A single-member LLC with no election is a disregarded entity; the owner takes draws and is taxed on the entire profit whether or not it is withdrawn.
An LLC taxed as an S-corporation must pay the owner a reasonable salary through payroll before any remaining profit is taken as a distribution.
Partners in a multi-member LLC cannot be put on W-2 payroll; they receive guaranteed payments and distributions and are taxed on their allocated share.
An LLC taxed as a C-corporation pays the owner a salary, and any dividend taken afterward is taxed a second time at the shareholder level.

How does a single-member LLC owner pay themselves?

An LLC is a legal shell that can be taxed several different ways, so before deciding how to take money out you have to know how the entity is taxed. That classification determines both the mechanics and the tax treatment.

A single-member LLC that has made no election is a disregarded entity, taxed as a sole proprietorship on Schedule C. You do not put yourself on payroll. You take owner draws, which are simply transfers from the business account to yourself. You are taxed on the entire net profit for the year, plus self-employment tax on it, whether or not you draw it out, so leaving money in the business account does not defer the tax. Draws are not a deduction and not a paycheck; they are you moving your own money.

How does payment change after an S-corporation election?

If that same LLC files Form 2553 to be taxed as an S-corporation, you become an employee of your own company. You must pay yourself a reasonable salary through formal payroll, with income and payroll taxes withheld, quarterly payroll returns filed, and a W-2 issued at year end. The remaining profit can be taken as distributions that are not subject to self-employment tax, and the business files its own return on Form 1120-S.

The reasonable salary requirement is not optional and is heavily examined. The salary has to reflect the real value of your work, documented against comparable pay in your field, before any distribution is justified. Distributions taken with no salary, or with a token salary, are the pattern examiners look for.

How are partners in a multi-member LLC paid?

A multi-member LLC is by default taxed as a partnership, filing Form 1065, and partners are not employees. You generally cannot put a partner on W-2 payroll. Instead, partners receive guaranteed payments for services or for the use of capital, which function somewhat like a salary and are deductible to the partnership, plus distributions of their share of the profit. Each partner is taxed on the share of income allocated under the operating agreement and reported on Schedule K-1, again whether or not it is distributed.

An LLC can also elect to be taxed as a C-corporation, in which case the owner is an employee paid a salary, and any further money taken out as a dividend is taxed again at the shareholder level. That double layer is why the choice is less common for closely held service businesses, though it has uses where profit is retained for growth or where qualified small business stock treatment is the goal.

What are the limits of each payment method?

Each method has a hard edge. Draws from a disregarded entity cannot reduce or defer tax, because the whole profit is taxed regardless. An S-corporation salary set too low invites reclassification of distributions as wages with back payroll taxes and penalties. A partner paid through W-2 payroll is being paid incorrectly, and guaranteed payments still carry self-employment tax. A C-corporation dividend is taxed twice.

The words "how do I pay myself" hide a prior decision about entity taxation, and the two should be considered together. The right structure depends on profit level, whether there are partners, the state's rules, and how retirement will be funded. Confirm the entity's current classification, set the payment method to match it, and revisit the election with your CPA as profit grows, since the answer that fit at the start often stops fitting later.