How to Pay Yourself as an LLC or S Corp
If you’ve recently formed an LLC or elected S Corporation status, you might be wondering: How do I pay myself now? The answer depends on how your business is taxed—and getting it right matters for taxes, bookkeeping, and compliance.
Below, we explain the most common ways business owners pay themselves—and how to avoid costly mistakes.
Paying Yourself from a Single-Member LLC
If you’re a one-person LLC (without S Corp election), the IRS considers your business a “disregarded entity.”
How you pay yourself:
You take what’s called an owner’s draw. This means you simply transfer money from your business account to your personal account.
Example:
Maria is a freelance photographer in Los Angeles. She operates under an LLC and transfers $2,000/month from her business account to pay her personal expenses. That’s her owner’s draw.
Tax Note:
You’ll pay self-employment taxes on your net profit, not on the draw itself.
Paying Yourself from a Multi-Member LLC
Multi-member LLCs are usually taxed as partnerships.
How you pay yourself:
Owners receive distributions of profit and may also earn a guaranteed payment for their services.
Example:
Jack and Lisa co-own a creative agency in LA. They split profits 50/50, but Lisa also receives a monthly $3,000 guaranteed payment for managing operations.
Tax Note:
All profits are reported on Schedule K-1 and passed through to each partner’s individual tax return.
Paying Yourself from an S Corporation
If your LLC elects to be taxed as an S Corporation, the rules change.
How you pay yourself:
You must pay yourself a reasonable salary through payroll (like an employee), and you may also take dividend distributions from remaining profits.
Example:
Diego runs a digital marketing firm in West Hollywood. As an S Corp owner, he pays himself $5,000/month in W-2 wages and another $2,000/month in dividends.
Tax Benefit:
Only the salary is subject to payroll taxes (Social Security and Medicare). Dividends are not, which can save money—but you must be careful not to underpay yourself.
Common Mistakes to Avoid
- Taking only dividends from an S Corp and skipping the required salary.
- Mixing personal and business expenses in LLCs without proper tracking.
- Forgetting to run payroll if you’re an S Corp owner.
Should You Be an S Corp?
S Corporations are popular among growing businesses because of the potential tax savings. But they come with more paperwork and IRS rules. A CPA Los Angeles or Tax Advisor Los Angeles can help you decide if it’s right for you.
Need Help Figuring It Out?
At Velin & Associates, Inc, we help business owners across Los Angeles pay themselves properly, reduce tax burdens, and stay compliant. Whether you’re a creative freelancer or a small business turning into a corporation, we can guide you.
For more information about our services, please visit our website.
Velin & Associates, Inc
8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.