What You Need to Know About Paying Yourself as A Single-Member LLC

What you need to know about paying yourself as a single-member llc

You did it! You are a new business owner and have decided to organize your business as a limited liability company (LLC). You are its sole owner and work for the company. How do you pay yourself? Are there guidelines regarding how often and how much you are entitled to? How do self-employment taxes come into play? The answers to these questions depend on how your LLC is taxed.


By default, a single-member LLC is taxed as a disregarded entity. This means that the LLC’s income is treated as personal income for tax purposes. As a result, there are fewer restrictions and more options for how you pay yourself. One option is to write yourself a check. When keeping your books, this type of payment is called a “draw” or “owner’s distribution.” You can also pay yourself by transferring funds from your business account to your personal account, but this will likely raise a red flag pertaining to piercing the veil.

Single-member LLC owners are responsible for paying self-employment taxes on the LLC’s profits; however, there is no automatic tax withholding. Instead, you are required to pay quarterly taxes based on the income you have generated during the quarter. How much you pay in self-employment taxes depends on your current income and tax bracket.


If, on the other hand, you elect for your business to be taxed as an S corporation, there are more considerations to keep in mind in order to take advantage of the tax-saving strategies associated with this form of taxation. First, you should pay yourself a reasonable salary.

The Internal Revenue Code does not provide significant guidance pertaining to what constitutes a reasonable salary, but the following factors are often relevant to the determination:

  • What do other similarly situated professionals get paid?
  • How much experience do you have?
  • How often are distributions or bonuses issued?

These questions are aimed at examining the reasonableness of the salary based on common industry practices as well as your unique situation.

The salary you pay yourself is subject to standard Federal Insurance Contributions Act (FICA) tax withholding (for Social Security and Medicare) as in typical employment arrangements. Additionally, it differs from the draw or owner’s distribution discussed above for disregarded entities because the amount that you pay yourself as an employee beyond a reasonable salary is not subject to self-employment tax.

As the owner of a single-member LLC taxed as an S corporation, you are entitled to any of the profits after expenses have been paid. Any amount paid to you as an owner above your salary can be categorized as a dividend or bonus. This is one of the most attractive features of an LLC with an S corporation tax election. These opportunities for tax withholding can provide the sole member of an LLC significant tax savings.


Regardless of your single-member LLC’s taxation election, it is important to follow a clear system for paying yourself and keep accurate records. If you need assistance understanding the unique characteristics of your LLC and what you are required to do as a single-member LLC, do not hesitate to call our office. A business lawyer like ours at The Browne Firm can help you understand your options so that you choose the best method for your business.

For more information about what The Browne Firm can do for you, contact us online or call (914) 290-5622 for assistance!

Author Bio

Danielle Browne is the founder and managing attorney of The Browne Firm, a New York-based estate planning and business law firm. Danielle leverages her background, serving as general counsel for a Fortune 500 company and working with startups to represent clients in entity formation, intellectual property protection, contract drafting, estate planning, and more.

With more than ten years of experience as an attorney and business executive, she has represented clients ranging from entrepreneurs and small businesses to artists and Fortune 500 companies. Danielle received her Juris Doctor cum laude from the University of Miami School of Law and is licensed to practice in New York. She has received numerous honors for her work, including being named a 2015 Future Leader by the WNBA President while serving as general counsel for the Atlanta Dream.

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