Written by Maryam Ajorloo, CPA · Reviewed by Behdad Karimi Dermeni, CPA
To pay yourself from an LLC, transfer money from your business account to your personal account as an owner's draw. That's it for a single-member LLC. If your LLC is taxed as an S corporation, the rules change: you have to run a reasonable salary through payroll first, then take the rest as distributions.
Which means the honest answer to "how do I pay myself" is a question back at you: how is your business taxed?
Everybody gets told to separate business and personal money. Far fewer people get told what to actually do the first time they move money out. This guide covers both: how to pay yourself under each structure, and how to record it so your books still make sense in April.
Let the AI handle the recording part. Start free for 30 days.
The one rule: your tax election decides everything
Here's the principle that resolves most of the confusion:
> How you pay yourself is determined by how your business is taxed, not by what it's called.
"LLC" is a legal structure, not a tax status. The IRS doesn't have an LLC tax return. A single-member LLC is taxed as a sole proprietorship by default, a multi-member LLC is taxed as a partnership, and any LLC can elect to be taxed as an S corporation instead.
So two businesses can both be LLCs and pay their owners in completely different ways, with completely different bookkeeping. Find your tax status first and the rest follows.
Before anything else: separate business and personal money
This is the step everyone nods along to and then quietly skips for the first six months. It matters more than any other habit in this guide, for two reasons that have nothing to do with tidiness.
Reason 1: it's what makes your liability protection real. The entire point of an LLC or corporation is that the business is a separate legal person from you. If your bank statements show the business paying your mortgage and you paying the business's vendors from a personal card, you've undermined your own argument. Courts call this commingling, and it's the most common way owners lose the liability shield they formed the entity to get. You can do everything else right and still hand someone the argument that there was never really a separate business here at all.
Reason 2: mixed accounts make your books unreliable, quietly. Not wrong in an obvious way. Wrong in the way where your profit number is off by a few thousand dollars and you don't find out until your accountant asks why revenue doesn't tie.
What separation actually looks like in practice:
A dedicated business checking account. Non-negotiable, and the single highest-value thing on this list. Every dollar the business earns lands here, every business expense leaves from here.
A dedicated business card. Not a second personal card you've mentally assigned to the business. An actual business card, so the statement is a clean record.
One direction for owner money. When you take money out, it's a draw or a distribution. When you put money in, it's a contribution. Both get recorded. Neither is revenue or an expense.
A rule for the inevitable mistake. You will eventually buy something for the business on your personal card. That's fine. It just needs to be recorded properly rather than ignored.
That last one deserves its own paragraph, because it's the thing we get asked about most.
When you pay for a business expense with personal money, it is still a business expense. You don't lose the deduction. But it isn't a simple transaction either, because no money left the business account. What happened is that you personally lent the business the cost of that item. It gets recorded as the expense on one side and as money the business owes you on the other. Do that consistently and you can pay yourself back tax-free later, because you're being reimbursed, not paid.
Skip it, and you've simply donated the deduction to nobody.
How to pay yourself from an LLC with one owner (or a sole proprietorship)
If you're a sole proprietor or a single-member LLC that hasn't elected corporate taxation, you and the business are the same taxpayer. Your profit flows onto your personal return via Schedule C.
How you pay yourself: transfer money from the business account to your personal account whenever you want. That's an owner's draw. No payroll, no withholding, no paperwork.
The part that surprises people: the draw is not what you're taxed on. You're taxed on the business's net profit, whether you took it out or left it sitting in the account. Take out $30,000 from a business that made $80,000 and you're taxed on $80,000. This catches new owners every single year.
Self-employment tax applies. Because no employer is withholding for you, you owe both halves of Social Security and Medicare yourself. Per the IRS, the self-employment tax rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare. It kicks in once your net earnings hit $400, and the Social Security portion only applies up to an annual wage cap that changes each year. High earners add another 0.9% Medicare tax above the threshold for their filing status.
In your books: a draw is not an expense and never touches your income statement. It reduces owner's equity. If it shows up in your expenses, your profit is understated and your tax return will be wrong.
Independent contractor bookkeeping works identically, since a contractor receiving 1099s is a sole proprietor for tax purposes unless they've formed something else. Our guide to bookkeeping for freelancers covers the income-tracking side in more depth.
Multi-member LLC and partnership: draws and guaranteed payments
With more than one owner, each member has a capital account tracking what they put in, their share of profits, and what they've taken out.
There are 2 ways money reaches you:
Distributions (draws): your share of profits, taken out against your capital account. Same treatment as a sole proprietor's draw, scaled to your ownership percentage.
Guaranteed payments: a fixed amount paid to a member for services or capital, owed whether or not the business turns a profit. Functionally the closest thing a partnership has to a salary, but it isn't payroll and no taxes are withheld. It's deductible to the partnership and subject to self-employment tax for you.
The business files Form 1065 and issues each member a Schedule K-1 showing their share. You pay tax on your share of profit, again regardless of what you actually withdrew.
In your books: every member needs their own equity accounts. Guaranteed payments are an expense of the business. Distributions are not. Mixing those two up will misstate profit and quietly distort everyone's K-1.
Get your operating agreement to say how this works before it matters. Distribution timing and whether members can take unequal draws are much easier conversations in year 1 than in year 3.
S corporation: reasonable salary, then distributions
This is where owners save real money and also where they get into real trouble, so it's worth being precise.
An S corp (or an LLC that elected S corp taxation) splits your pay into 2 streams:
A W-2 salary, run through actual payroll, with taxes withheld like any employee.
Distributions, taken from remaining profit, not subject to self-employment tax.
That second line is the entire appeal. Distributions escape the 15.3% self-employment hit, so the lower your salary, the less payroll tax you pay. You can see where this is going, and so can the IRS.
The rule you cannot design around. The IRS is explicit: "Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation." Pay yourself a $12,000 salary and take $150,000 in distributions and the IRS can simply reclassify the difference as wages, with back payroll taxes and penalties attached. This has been tested in court and the IRS keeps winning.
There's no formula for "reasonable." The IRS weighs your training and experience, your duties and responsibilities, the time and effort you put in, what comparable roles pay in your market, what you pay non-shareholder employees, and your history of distributions. In practice: what would you have to pay someone else to do your job?
You will need a payroll provider. An S corp owner-employee has to be on real payroll, with withholding, quarterly filings, and a W-2 at year-end. This isn't something to approximate with transfers labelled "salary." Bookkeeping software keeps your books straight, but running the payroll itself is a separate service, and the two need to talk to each other.
Reimburse yourself through an accountable plan. Home office, mileage, phone, professional development: with a written accountable plan and proper documentation, the corporation reimburses you for these tax-free. Without one, the same payments can become taxable wages. It's a document you write once and a habit you keep.
Watch your basis. Distributions above your stock basis become taxable capital gains. If the business has had loss years or you've taken out more than you've put in plus earned, check basis before taking a large distribution.
The bookkeeping mistake that costs S-corp owners the most
Of everything in this guide, one error shows up more than any other: recording owner distributions as a business expense.
It feels intuitive. Money left the business, so it looks like a cost. But a distribution is a return of profit to an owner, not a cost of operating. It reduces equity on the balance sheet and never touches the income statement.
Book it as an expense and 3 things break at once. Your profit is understated, so your financial statements are wrong. Your tax return is wrong, because you've claimed a deduction that doesn't exist. And your equity accounts no longer reflect what owners have actually taken, which makes basis impossible to track.
The same logic applies to a sole proprietor's draw and a partner's distribution. Money you take out as an owner is never an expense. Money you pay yourself as W-2 salary in an S corp is, because at that moment you're an employee and the corporation is genuinely paying for labor.
This distinction is one of the reasons owner transactions are worth automating. ReInvestWealth's AI Bookkeeper categorizes owner draws and contributions to the right equity accounts rather than dropping them into expenses, so the error never enters your books in the first place. See how it works.
What changes in your books, by entity
The short version, if you skipped here:
Sole proprietor / single-member LLC: owner's draw and owner's contribution accounts under equity. No payroll. Taxed on net profit via Schedule C. Simplest books of any structure.
Multi-member LLC / partnership: separate capital, draw, and contribution accounts for every member. Guaranteed payments sit in expenses, distributions do not. Form 1065 plus a K-1 per member.
S corporation: payroll running alongside the books, a shareholder distributions equity account kept strictly out of expenses, an accountable plan for reimbursements, and basis tracked over time. Form 1120-S plus K-1s.
C corporation: salary is an expense, dividends are an equity reduction, and profit is taxed at the corporate level before dividends are taxed again on your return.
Notice what's constant across all 4: owner money in and out lives in equity, and the business's actual costs live in expenses. Keep that line clean and most of the rest is mechanical.
How to set this up in 5 steps
Confirm how your business is actually taxed. Not what you call it. Check whether you've filed an S corp election and whether your LLC has one member or several. Everything else depends on this answer, and plenty of owners are unsure.
Open a dedicated business checking account and card, if you haven't. Move all business income and spending onto them. Until this is true, no amount of careful categorizing will produce reliable books.
Set up your owner equity accounts. At minimum, owner's contributions and owner's draws (or shareholder distributions for an S corp). One set per owner in a multi-member business. Keep them under equity, never under expenses.
If you're an S corp, get on payroll and write your accountable plan. Pick a defensible salary you can justify against what the role would cost to hire, document how you arrived at it, and put the reimbursement plan in writing before you reimburse anything.
Connect your bank so owner transfers get categorized as they happen. The failure mode is never a single dramatic error, it's 11 months of unlabeled transfers that someone has to reconstruct in March.
Practical tips
Pay yourself on a schedule, not on impulse. Same date each month, even if the amount varies. It makes your books readable, your cash flow predictable, and a reasonable-salary argument much easier to defend.
Never move money without a label. A transfer described as "transfer" is a question your future self has to answer with no evidence. Two words in the memo field now saves an hour later.
Revisit the S corp question yearly, not once. The election makes sense at a certain profit level and not below it, and the payroll and filing overhead is real. It's a math question worth redoing as your income changes, ideally with your accountant, who can also confirm your salary is defensible.
Frequently asked questions
How do I pay myself from an LLC?
For a single-member LLC taxed as a sole proprietorship, transfer money from your business account to your personal account as an owner's draw. No payroll or withholding is required. If your LLC has elected S corporation taxation, you must pay yourself a reasonable W-2 salary through payroll first, then take additional profit as distributions.
Can I pay myself a salary from a single-member LLC?
Not a true W-2 salary, unless you elect corporate taxation. A default single-member LLC and its owner are the same taxpayer, so you cannot be your own employee. You take draws instead, and you're taxed on the business's net profit regardless of how much you withdraw.
How much should an S corp owner pay themselves?
Enough to be defensible as reasonable compensation for the work you do. The IRS looks at your duties, time and effort, experience, what comparable positions pay, and what you pay other employees. There's no safe-harbor percentage, so the practical test is what you'd have to pay someone else to do your job.
Is an owner's draw a business expense?
No. A draw reduces owner's equity and never appears on your income statement. Recording draws or distributions as expenses understates your profit and produces an incorrect tax return. Only W-2 salary paid by a corporation is a deductible business expense.
Do I pay taxes on money I leave in the business?
If you're a pass-through entity (sole proprietorship, partnership, or S corp), yes. You're taxed on your share of the profit whether you withdraw it or leave it in the account. Leaving money in the business is not a way to defer tax on it.
What if I paid for something business-related with my personal card?
It's still deductible. Record it as a business expense and as an amount the business owes you, then reimburse yourself later. What you should not do is leave it out of the books, which is the same as giving up the deduction.
Getting the recording part off your plate
Paying yourself is the easy half. Recording it correctly, every time, for 12 months, is where owner books usually come apart.
Connect your bank account and let the AI categorize transactions as they arrive, with owner draws and contributions landing in equity where they belong instead of quietly inflating your expenses. Built by CPAs, rated 4.8 on Capterra, and used by 3,000+ entrepreneurs. When it's time to file, your accountant gets clean books instead of a reconstruction project. Start free for 30 days
A note from our CPAs: This guide is educational and covers the general rules for US small business owners. Entity choice, reasonable compensation, and basis are genuinely fact-specific, so for advice on your situation talk to your accountant. (If they use ReInvestWealth, they'll already have clean books to work from.)
Written by Maryam Ajorloo, CPA
Maryam Ajorloo is the co-founder of ReInvestWealth and a CPA who specializes in small business tax and everyday bookkeeping. She helps entrepreneurs keep clean, audit-ready books and make sense of write-offs, filing deadlines, and the numbers behind their business. Read more · Connect on LinkedIn
Reviewed by Behdad Karimi Dermeni, CPA
Co-founder of ReInvestWealth and a founding community builder at Stripe. Behdad built ReInvestWealth to give smart, busy entrepreneurs CPA-level accounting without the CPA-level price tag. Read more · Connect on LinkedIn
