How to pay yourself through an LLC

When you are the only member of your LLC, it is considered a single-member company and is taxed as a sole proprietorship.

If your LLC has more than one member, you can choose to be taxed as a partnership or corporation. Corporations and partnerships are both multi-member LLCs; however, their members are paid differently.

If you are part of a sole proprietorship LLC, you pay yourself with what is called an owner's draw. Your single-member LLC is a disregarded entity, meaning that your LLCs profits and your own salary are the same thing.

For tax purposes, you report you and your company's income with Schedule C of your IRS Form 1040 (your personal tax return).

An owner's draw is like an official statement communicating that some of your LLC's earned income is staying in the company, and some of it will be directed to you for personal use.

To make an owner's draw, you must write yourself a check from your LLC's business account and deposit it into your own bank account. Record this transaction as an owner's draw.

The IRS views every multi-member LLC (partnership or corporation) as a partnership by default.

Partners in an LLC may get their income as draws, similar to a single-member LLC. However, the partnership is a pass-through entity, meaning that while it reports its earnings with an IRS Form 1065, the partnership itself is not taxed.

Alternatively, each member of the partnership pays a fraction of the total income tax on the LLC's earnings. The size of the fraction paid depends on the partnership agreement.

LLC members in either a C corporation or an S corporation can not be paid with draws. In this case, they must be paid with salaries as employees of the company. In addition to salary, they may also take an extra percentage of the LLC's income as dividends. The amount of dividends is stated in the LLC's articles of incorporation.