How do I pay myself as an owner of a single-member LLC?

An LLC, or limited liability company, is a lightweight business structure that melds the flexibility of a partnership with the limited liability of a corporation. LLCs are organized under state rules, and for federal purposes, may be treated as a partnership, corporation, or as part of the owner’s personal taxes. While it doesn’t have the typical tax savings other business entities do, it is a lot less confusing.

Paying myself as an owner of a single-member LLC

A single owner of an LLC is not considered an employee, and therefore doesn’t receive any wages. Instead, they can receive a distribution, which is reported as part of their personal income tax return. Owners are subject to tax on the net earnings of the LLC, which is treated in the same way as a sole prop.

Sometimes, an LLC may elect to be treated as a corporation for tax purposes. When that happens, you may be considered an employee and receive wages, rather than a distribution. That distinction can get thorny, so be sure to check with your tax advisor to see how your LLC is treated.

 

Curious about other business structures? Here’s a quick breakdown:

Business structure

How to pay yourself

Tax return

Sole proprietorship

Owner’s draw

Schedule C (Form 1040)

LLC with one member

Owner’s draw

Schedule C (Form 1040)

LLC with multiple members

Distributive share

Schedule K-1 (Form 1065)

Partnership

Distributive share

Schedule K-1 (Form 1065)

S corporation

Distributive share

Schedule K-1 (Form 1065)

C corporation

Dividends

Dividends income on Form 1040

Corporate Officer

Employee wages (if you perform more than minor services for the business)

Form W-2

 

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