A good question that I get asked quite often is about how to pay yourself from your LLC. Figuring out how to pay yourself from your LLC can seem like a daunting concept if you’re in a single-member LLC. Never fear! It really is much easier than you’d think. There are two possible ways to pay yourself from your LLC that depends on how the LLC is taxed.
Unless the LLC elects otherwise, a single-member LLC is considered a “disregarded entity”. A disregarded entity means all of the income to the LLC is treated as income to the business owner. Also that it’d all subject to self-employment tax. Basically, as the sole member of a single-member LLC, you can pay yourself from your LLC however and whenever you want, keeping in mind a few important considerations.
- Make sure you are prepared to pay taxes. Since the single-member LLC is a disregarded entity, if the business earns $100k but you only “pay” yourself $50k, you are still going to be responsible for paying all of the taxes. This includes self-employment taxes, on the full $100k. (For simplicity’s sake, I am pretending there are no deductions or anything.) So you need to set aside enough money to make sure you can cover your taxes.
- The business has to remain adequately capitalized. This means that you need to keep enough money in the business to cover all your overhead, debts, salary for employees, etc. You should also leave some extra “padding” for possibly building up your business, purchasing equipment, and whatever else you may decide to do with your business.
In the books, any payments to yourself should be recorded as “Member Distribution” or “Member Withdrawal.”
Also, Contact us today if you’re in Colorado and you need help with your LLC. Subscribe to our YouTube channel for more All Up In Yo’ Business!