How to Pay Yourself From an LLC (Owner's Draw vs. Salary, Explained Simply)

The money move itself is easy — a transfer to your personal account. What matters is how your LLC is taxed, because that decides what the transfer actually is.

If your LLC made money this month, paying yourself is mechanically simple: transfer money from the business account to your personal account. The confusion is not the transfer — it is what that transfer means for your taxes. And that depends entirely on how your LLC is taxed.

Single-member LLC: the owner's draw

A single-member LLC that has not elected corporate taxation is a 'disregarded entity' — the IRS treats you and the business as the same taxpayer. You pay yourself with an owner's draw: move money from the business account to your personal account whenever you want, in whatever amount the business can afford.

Here is the part that surprises people: the draw is not a business expense. It does not appear on your P&L and it does not reduce your profit. You are taxed on the profit the business earns — reported on Schedule C — whether you take the money out or leave it in. The draw is just you moving your own money between pockets.

Multi-member LLC: distributions

Multi-member LLCs are taxed as partnerships by default. Each member takes distributions according to the operating agreement, and each pays tax on their share of the profit — again, whether or not the cash was actually distributed. The LLC files a partnership return and issues each member a K-1 showing their share.

LLC taxed as an S-corp: salary plus distributions

If your LLC has elected S-corporation taxation, the rules change completely. You must pay yourself a reasonable salary through payroll — with withholding, payroll taxes, and filings — and you can take remaining profit as distributions. The salary is subject to payroll taxes; the distributions generally are not subject to self-employment tax. That split is the entire reason people elect S-corp status, and it is also why the IRS requires the salary to be reasonable for the work you do.

Whether an S-corp election saves you money depends on your profit level, your state, and the added cost of payroll and the extra return. Below a certain profit it often costs more than it saves. This is a conversation for your tax preparer, with your actual numbers in hand.

How much should you take?

A workable rhythm for most owner-operators: transfer a fixed amount monthly, leave enough in the business to cover about two months of expenses, and keep a separate tax reserve. A common practice is moving a percentage of every dollar of profit into a separate savings account for quarterly estimated taxes — your preparer can set the right percentage for your situation.

The record-keeping part nobody mentions

Draws and distributions have to be visible in your books as owner transactions — not expenses, not income. If they get categorized as expenses, your profit is understated and your tax return is wrong. This is one of the most common errors in small business books, and it is invisible until someone looks for it.

LedgerFast keeps owner draws and distributions in their own lane, separate from revenue and expenses, so your P&L shows real profit and your tax package shows clean owner activity. Plans from $49/month, first month free.

Disclaimer

This article is general educational information, not tax, legal, or accounting advice. LedgerFast is not a CPA firm and does not provide tax preparation or filing services. Entity taxation is fact-specific and rules change — consult a qualified tax professional before choosing how to pay yourself or making an entity election. Use of LedgerFast is governed by our Terms of Service.

Frequently asked questions

Can I just transfer money from my LLC to my personal account?

Yes — for a single-member LLC taxed as a disregarded entity, that transfer is an owner's draw and it is the normal way to pay yourself. Just record it as an owner draw in your books, not as a business expense. If your LLC is taxed as an S-corp, you must pay yourself through payroll instead.

Does an owner's draw count as a business expense?

No. A draw never reduces your business profit. You are taxed on the profit the LLC earns regardless of how much you withdraw, so recording draws as expenses would understate your income and create a tax problem.

How much should I pay myself from my LLC?

Enough to live on, while leaving roughly two months of operating expenses in the business and reserving a percentage of profit for taxes. Many owners set a fixed monthly transfer so the business account stays predictable. Your tax preparer can help you size the tax reserve.

Do I pay taxes on money I leave in the LLC?

Yes, if the LLC is taxed as a disregarded entity or partnership. You are taxed on the profit, not the withdrawals — money left in the business account is still taxable profit to you. Only corporate taxation changes that, which is a decision to make with a tax professional.

When does an S-corp election make sense?

When the self-employment tax savings on distributions exceed the added cost of running payroll and filing the extra return — which generally requires consistent profit well above a reasonable salary. The break-even point is different for every business, so run your real numbers with a preparer before electing.