How to Pay Yourself as an LLC Owner in 2025: Single & Multi-Member Guide

Starting your own LLC is exciting, but once the contracts are signed, the invoices are paid, and the revenue starts rolling in… how do you actually get your money out of the business?

Many new LLC owners assume they can just Venmo themselves from the business account and call it a day. But the IRS doesn’t see “just transferring money to your personal account” as a valid strategy. 

Rather, how you pay yourself as an LLC owner depends entirely on how your business is structured and taxed. Get it wrong, and you could face:

• Costly IRS penalties that drain your bottom line

• Missed yearly tax deductions you’re eligible for

• Higher risks of audit and unwanted IRS scrutiny

Whether you’re a solo operator, running your LLC from abroad, or building with partners, this guide breaks down how to pay yourself as an LLC owner in the smartest, most compliant ways. 

And with doola on your team, you get a trusted partner who ensures you’re paid the right way, avoid costly compliance mistakes, and scale seamlessly. 

First Things First: Understand Your LLC Type

Before deciding how to pay yourself, you need to know what kind of LLC you’re running.

Different LLC types follow different tax rules; this affects whether you take a draw, distribution, or salary.

Types of LLCs and How They Affect Payments

The table below breaks down the most common LLC setups, their default tax classifications, and how owners typically pay themselves:

LLC Type	Default Tax Classification	How You Get Paid
Single-Member LLC (SMLLC)	Disregarded entity	Owner’s draw
Multi-Member LLC (MMLLC)	Partnership	Distributions / Guaranteed payments
LLC taxed as S Corporation	Requires IRS election	Salary + Dividends

📌 Why This Matters

Your LLC structure determines:

• If you need to run payroll: Certain setups require formal payroll processing, complete with pay stubs, tax withholdings, and filings.

• Whether payments are subject to self-employment tax: The difference between draws, distributions, and salaries can change your total tax bill significantly.

• Which IRS forms you must file: Each structure comes with its own reporting requirements, from Schedule C to Form 1120-S, and missing them can lead to penalties.

Need help choosing the right type? doola helps you form the right LLC structure from the start, including EIN, operating agreement, and S Corp election if needed.

Option 1: Paying Yourself from a Single-Member LLC (Default Taxation)

First-time LLC founders often assume they can just wire themselves money or swipe the business card for personal use, but the IRS sees it differently.

Your LLC is considered a “disregarded entity” by default, meaning it doesn’t file its own tax return. 

Instead, all profits pass through to your personal return, and the way you pay yourself must reflect that.

How It Works: Owner’s Draws, Not Salaries

If your LLC hasn’t elected to be taxed as a corporation (C Corp or S Corp), the IRS treats it as a disregarded entity.

Here’s what that means for your paycheck:

• You do not receive a salary or W-2.

• You do not withhold income tax from your LLC payments.

• You do pay yourself using what’s called an owner’s draw.

What Is an Owner’s Draw?

An owner’s draw is when you transfer money from your business account to your personal account for personal use.

It’s not taxed when withdrawn.

But you still pay taxes, just not at the time of the draw. You’re taxed on your total net income, not how much you pay yourself.

Tax Responsibilities: What You Owe & When

As an entrepreneur, especially if you’re self-employed, you’re responsible for handling both income taxes and specific business-related tax obligations throughout the year.

Here’s a breakdown of the two key responsibilities you can’t afford to ignore:

1. Self-Employment Tax (15.3%)

When you’re your own boss, you play both roles: employer and employee.

That means you’re responsible for paying the full 15.3% self-employment tax, which covers both Social Security and Medicare contributions.

Tax Component	Rate
Social Security	12.4%
Medicare	2.9%
Total	15.3%

You’ll report this self-employment tax using Schedule SE and pay it alongside your regular income tax when you file your return.

2. Quarterly Estimated Taxes (Form 1040-ES)

The IRS expects you to pay taxes as you earn, not just once a year. That means you’ll need to estimate your annual profit, divide that into four, and make quarterly payments.

Quarter	Due Date	Portion of Tax Owned
Q1	🗓️ April 15, 2025	25%
Q2	🗓️ June 15, 2025	25%
Q3	🗓️ Sep 15, 2025	25%
Q4	🗓️ Jan 15, 2026	25%

⚡ doolaTip: If your total tax liability is over $1,000 for the year, you must pay estimated taxes (fill out form 1040-ES) to avoid penalties 

Best Practices: Bookkeeping & Compliance Tips

Keeping your LLC financially healthy starts with smart habits. Here’s how to avoid IRS scrutiny:

1. Set Up a Separate Owner’s Equity Account

Track every draw you take from your LLC using an equity account (often called “Owner’s Draw” in accounting software). This keeps your financials clean and shows you’re not misusing business funds.

2. Keep Business and Personal Accounts Separate

Don’t pay your Netflix subscription from your business card. Ever. Use a dedicated business checking account and transfer funds to your personal account when you pay yourself.

3. Log Everything

Track every owner’s draw, every business expense, and every invoice. With cloud-based solutions like doola, you can keep everything organized and accessible all year long.

4. File Schedule C with Your Tax Return

As a sole owner, your business activity is reported on Schedule C of your personal Form 1040. This is where the IRS gets the full picture of your earnings and eligible write-offs for the year.

Common Pitfall: Treating an Owner’s Draw Like a Salary

Some founders mistakenly report their draw as a salary, thinking they’ve “paid themselves” correctly. This can:

• Lead to incorrect tax deductions (you can’t deduct your draw as a business expense).

• Trigger IRS scrutiny for improper reporting.

• Result in over- or underpaying taxes.

Solution:

Understand the distinction. Salaries require payroll, W-2s, and withholding. Owner’s draws are equity transfers and should never be labeled as wages.

Let’s break down the differences:

Feature	Owner’s Draw	Salary (W-2)
Payroll required?	❌	✅
Subject to self-employment tax?	✅	❌ (but subject to FICA)
Tax Withholding during payment?	❌	✅
Deductible business expense?	❌	✅
Forms Filed	Schedule C, SE, 1040-ES	W-2, 941/940

⚡ doola Tip for Do’ers: Set Up an “Owner Pay” System

Use a solution like doola to create a simple pay-yourself strategy:

• Allocate a % of revenue to taxes (e.g., 30%)

• Allocate a % to personal pay (e.g., 40–50%)

• Allocate a % to business reinvestment or reserves

This “Profit First”-style method keeps your business solvent and your taxes funded.

Option 2: Paying Yourself from a Multi-Member LLC

If you’ve formed a Multi-Member LLC (MMLLC), how you pay yourself, and your partners, requires more than just a casual transfer of funds.

Unlike single-member LLCs, where things are fairly straightforward, multi-member LLCs operate under a partnership framework by default. 

There are two methods to compensate yourself: distributions and guaranteed payments.

Legal & Tax Framework

Multi-member LLCs are taxed as partnerships by default, even if you don’t file anything special with the IRS.

That means your LLC doesn’t pay taxes itself, instead, the profits “pass through” to the members, who then pay personal taxes on their share.

You typically pay yourself in one (or both) of the following ways:

1. Distributions (a.k.a. Profit Shares)

These are your slice of the LLC’s profits. Based on the ownership percentages in your operating agreement, each member is entitled to a share of the business’s net income.

📌 Note: Distributions are not considered wages, so they don’t go on a W-2. But they are taxable and must be reported via Schedule K-1.

2. Guaranteed Payments

Sometimes, one partner might be doing more hands-on work than others. Guaranteed payments allow you to compensate a partner for their services or time, similar to a salary, but without going through traditional payroll.

📌 Tax Implication: Guaranteed payments are deductible business expenses for the LLC, but taxable income for the partner receiving them. They show up separately on the Schedule K-1.

Tax Rules: What the IRS Expects

Paying yourself from a Multi-Member LLC isn’t just about dividing up the profits, it comes with clear tax responsibilities.

Here’s how it works in real time:

Payment Type	IRS Forms	Deductible by LLC?	Taxed as Self-Employment Income?
Distributions	Schedule K-1	❌ No	✅ Yes
Guaranteed Payments	Schedule K-1	✅ Yes	✅ Yes

Example: Let’s say you’ve received the following sum:

• $80,000 as your profit share (distribution)

• $20,000 as guaranteed payment for services

• Total: $100,000

Your self-employment tax liability would be approximately:

$100,000 x 15.3% = $15,300

You’d pay this in addition to your regular income tax and must report it via Schedule SE with your personal Form 1040.

Do It Right: Best Practices for Paying Yourself

To avoid confusion (and tax trouble), here’s how to properly structure payments from your Multi-Member LLC:

1. Draft a Clear Operating Agreement: Clearly set the rules for:

• Ownership percentages

• How profits will be distributed

• Who receives guaranteed payments and how much

• How decisions about compensation will be made

2. Maintain Clean Bookkeeping: Track distributions and guaranteed payments under separate accounts:

• Use a Capital Account ledger: Helps track member contributions and distributions

• Use a Guaranteed Payments ledger: Easy to document service-based compensation

• Use Consistent Payment Schedules: Set a predictable timeline (e.g., quarterly distributions, monthly guaranteed payments). This ensures better cash flow planning.

Mistakes to Avoid

These mistakes can lead to IRS scrutiny, partner disputes, and accounting headaches:

Mistake	Why is it a Problem?
❌ Paying a Partner as an Employee (W-2)	Multi-member LLCs aren’t corporations. Issuing W-2s to members signals tax misclassification.
❌ No Paper Trail for Distributions or Payments	Without documentation, it’s hard to prove payments weren’t improper deductions or misreported income.
❌ Unclear or Unequal Distributions	If your operating agreement doesn’t match your actual profit-sharing, it can lead to legal disputes and IRS questions.

⚡ doola tip: If your partnership is growing fast or things are getting complicated, consider consulting a tax pro, or better yet, let doola handle it for you. From operating agreements to equity splits and guaranteed payment logs, we’ll help keep your house in order.

Option 3: Paying Yourself from an LLC Taxed as an S-Corp

Unlike standard LLCs where all profit is subject to self-employment tax, S Corps offer a strategic split: reasonable salary + profit distributions.

Let’s break down what that means, and how to do it the right way.

Election Process: How to Make Your LLC an S Corp

To be taxed as an S Corporation, follow a few simple steps:

The S Corp election isn’t automatic, it’s a strategic decision.

Step	Action	Deadline
1.	File IRS Form 2553	Within 75 days of forming the LLC or the start of the tax year you want S Corp status to take effect.
2.	Ensure Eligibility	Must be a US entity, have 100 or fewer shareholders, and only issue one class of stock. All members must be US citizens or residents.

⚡ doola tip: Many tax professionals recommend switching to S Corp status only once your net profits exceed ~$70,000 annually. This threshold is where the savings from reduced self-employment tax begin to outweigh the cost of running payroll and staying compliant.

How You Pay Yourself: Two-Tiered Compensation Strategy

With an S Corp, your compensation comes in two parts:

Step 1: Reasonable Salary (Through Payroll)

You’re now considered both owner and employee of your business.

• You must pay yourself a reasonable salary for the work you perform.

• This salary is subject to standard payroll taxes: Social Security, Medicare, federal, and state withholdings.

• You’ll need to file payroll tax forms like W-2s, Form 941 (quarterly), and Form 940 (annual FUTA).

Step 2: Profit Distributions (Dividends)

Any profits above your salary can be distributed to you as dividends.

• These are not subject to self-employment tax, making them more tax-efficient.

• However, they are still reportable as income and taxed at your ordinary income tax rate.

Tax Win: You save 15.3% in self-employment taxes on the distributed portion.

⚠️ Note: While the tax savings are significant, S Corps also come with added responsibilities such as payroll setup, bookkeeping, and compliance.

Tax Compliance: Don’t DIY Without Help

The IRS watches S Corps closely, especially for abuse of the “reasonable salary” rule. Underpaying yourself to maximize distributions can trigger audits and penalties.

To stay compliant, use the following tools:

Tool/Platform	Use Case
Gusto	Payroll processing, automatic tax form filings
QuickBooks Payroll	Syncs with accounting, handles payroll tax reports
doola Bookkeeping	Tracks your salary, distributions, and ensures clean books for tax time

Pro Tip: Work with a tax professional or platform (like doola) to determine a reasonable salary based on:

• Industry standards

• Your role and responsibilities

• Business revenue

Who Should Consider This Setup?

This option is ideal for:

• Founders with net profits consistently over $70K

• Business owners comfortable handling (or outsourcing) payroll

• Entrepreneurs looking to lower their self-employment tax liability

• Service-based businesses with steady cash flow (e.g., consultants, marketers, agencies)

Common Pitfalls to Avoid

❌ Mistake	Risk
Paying zero or ultra-low salary	IRS audit, back taxes, penalties
Missing payroll deadlines or filings	Late fees, interest charges
Not tracking distributions correctly	Inaccurate tax returns, compliance issues

Ready to pay yourself smarter? Sign up with doola today!

Which LLC Payment Method is Best for You in 2025?

This section breaks down the three main payment setups: Single-Member, Multi-Member, and S Corporation, so you can choose the one that best supports your 2025 financial goals.

LLC Type	Payroll Required?	Self-Employment Tax?	IRS Forms	Best For
Single-Member	❌	✅	Schedule C	Solopreneurs just getting started
Multi-Member	❌	✅	Schedule K-1	Founders with partners
S Corp	✅ (salary only)	❌ on distributions	W-2, 1120S	Businesses earning $70K+ net profit

When Should You Switch to an S Corp?

Electing S Corporation status is more about timing than taxes. Here’s when it might make sense to level up:

• You’re earning $70,000+ in net income

• You want to reduce your self-employment tax liability

• You’re ready to run payroll and handle compliance

• You plan to retain profits or reinvest in the business

💰 Why the $70K Threshold? Because below that, the cost of payroll services, tax filing, and compliance might outweigh your potential tax savings.

Real-World Use Cases: What Payment Method Should You Choose?

To make the right call on how to pay yourself from your LLC, it helps to see how other founders are doing it based on real-world income scenarios.

Here’s a breakdown of three common situations and which payment method fits best:

1. Solo Consultant Making $55K Net Income

Best Fit: Single-Member LLC (default taxation)

Why:  At this income level, the potential tax savings from electing S Corp status may not justify the extra payroll costs and added complexity. 

How to Pay Yourself:

Use the owner’s draw method. Transfer profits from the business account to your personal account as needed, no payroll processing required.

Example:

• Net income: $55,000

• You take $4,000/month as a draw to cover personal expenses

• All profits are subject to self-employment tax, but you skip payroll compliance headaches

Ideal For: Freelancers, coaches, or service providers just getting started.

2. Two Co-Founders with $100K in Annual Profit

Best Fit: Multi-Member LLC (default partnership taxation)

Why: With shared ownership, the IRS treats the LLC as a partnership by default. Profits are split between members, who report income via Schedule K-1.

How to Pay Yourselves:

Set up guaranteed payments (like a salary but not run through payroll) for each partner to ensure consistent compensation. Then split any remaining profit via distributions, as detailed in your operating agreement. All income is still subject to self-employment tax

Ideal For: Founding teams or spouses running a business together without wanting payroll overhead.

3. Marketing Agency Hitting $120K in Net Income

Best Fit: LLC taxed as an S Corporation

Why: Once net profit crosses the ~$70K threshold, electing S Corp status can offer real tax savings by splitting income between salary (subject to payroll taxes) and distributions (exempt from self-employment tax).

How to Pay Yourself:

• Set a reasonable salary, processed through payroll

• Take the remaining profit as distributions

• Only the salary portion is subject to payroll taxes

Ideal For: Scaling agencies, consultants, or productized service businesses looking to reduce tax liability and reinvest savings.

Common Mistakes to Avoid When Paying Yourself as an LLC

Paying yourself from your LLC might seem straightforward, but it’s one of the most misunderstood areas for founders.

Whether you’re a solo founder or scaling with a team, here’s how to dodge the biggest pay-yourself pitfalls in 2025:

Mixing Personal and Business Funds

Business Impact: This blurs the line between you and your business, risking the loss of limited liability protection, a legal concept called “piercing the corporate veil.” If challenged in court or audited, the IRS or creditors could treat your LLC as a nonexistent entity, holding you personally liable for business debts.

Solution:

• Open a dedicated business bank account.

• Never pay personal expenses directly from your business account (and vice versa).

• Use tools like doola to track all business transactions separately and clearly.

Skipping Quarterly Estimated Taxes

Business Impact: LLC owners are generally required to pay estimated taxes every quarter, especially if you’re not withholding income taxes through payroll. Skipping or underpaying these taxes can result in penalties, interest, and a messy surprise at tax time.

Solution:

• Use IRS Form 1040-ES to calculate and pay estimated taxes quarterly.

• Set aside 20–30% of your profits in a tax savings account.

Mislabeling an Owner’s Draw as Salary

Business Impact: If your LLC is taxed as a sole proprietorship or partnership, you’re not allowed to pay yourself a salary (as in, a W-2 paycheck). Mislabeling owner’s draws as salary can lead to tax misreporting, rejected expense deductions, or IRS penalties.

Solution:

• For single-member or multi-member LLCs (not taxed as S Corps), take owner’s draws or member distributions, not salaries.

• Only S Corps should run payroll and issue W-2s for owners.

• Keep a clean Owner’s Equity record of all draws and payments.

Failing to Document Payments Properly

Business Impact: Without documentation, it becomes difficult to prove to the IRS (or your co-founder) what payments were for, potentially triggering audits, disputes, or denied deductions. 

Solution:

• Record every draw, guaranteed payment, salary, or distribution in your bookkeeping software.

• Maintain a signed operating agreement that outlines how and when owners are paid.

• Use tools like doola Bookkeeping to automatically track and tag payment types.

Treating Distributions as Business Expenses

Business Impact: Distributions are owner withdrawals of profit, not operational costs. Mistaking them as business expenses results in inflated deductions, misfiled taxes, and potential IRS penalties.

Solution:

• Only legitimate expenses (rent, marketing, software tools, etc.) are deductible.

• Distributions should be tracked as equity reductions, not expenses.

• Work with a tax professional or doola’s experts to double-check your categorizations.

Setting an Unreasonable Salary in an S Corp

Business Impact: The IRS requires S Corp owners to pay themselves a “reasonable salary” before taking distributions. Pay yourself too little, and you risk triggering an audit and back taxes with penalties. Pay yourself too much, and you lose out on tax savings from distributions.

Solution:

• Benchmark your role’s salary using data from sites like Glassdoor or the Bureau of Labor Statistics.

• Maintain documentation showing how you determined your salary.

• Use payroll platforms (or doola’s payroll partners) to process salaries and stay compliant.

With doola, you don’t have to figure this all out on your own. From forming your LLC to setting up tax-compliant payment systems and bookkeeping, we’ve got your back.

How doola Helps You Form Your LLC (and Pay Yourself Properly)

With doola, you never have to guess how to pay yourself, or wonder if you’re doing it the IRS-approved way.

We guide you through every step, from business formation to smooth, compliant payouts, so you can focus on growth while we handle the details.

Here’s how we help you:

• Right LLC structure: We ensure your setup aligns with your income, tax goals, and long-term growth plans.

• Handle legal paperwork: Includes EIN, operating agreement, and S Corp election if it benefits your bottom line.

• Books and payroll: Includes ongoing support to track draws, distributions, and salaries without a hitch.

• Year-round compliance: Quarterly tax filings to issuing W-2s, 1099s, and other IRS forms on time, all year long.

Ready to get paid the smart and stress-free way? Sign up with doola today and start building your business with confidence.

FAQs

What’s the difference between an owner’s draw and a salary?

An owner’s draw is a non-salary transfer for SMLLCs or MMLLCs. A salary involves payroll, W-2s, and tax withholding, used in S Corps.

How do I pay myself if I have business partners?

You’ll likely use distributions and/or guaranteed payments—both must be documented in your operating agreement.

When should I consider switching to an S Corp structure?

Typically when your net income is $70K+, and you’re ready to run payroll and handle compliance.

Do I need to run payroll to pay myself as an LLC owner?

Only if your LLC is taxed as an S Corp. Default SMLLCs and MMLLCs don’t require payroll.

Can international founders pay themselves without a US SSN?

Yes, but you’ll need an ITIN (Individual Taxpayer Identification Number). doola can help with that, too.

How much should I pay myself from my LLC income?

It depends on your structure. For S Corps, the salary must be “reasonable.” For draws or distributions, make sure you’re leaving enough for taxes and operating expenses.