Your business is profiting but you’re still unsure of how to pay yourself in a single-member LLC. Figuring out how to pay yourself in a single-member LLC can seem confusing. Which would explain why this is a common question I get asked. The good thing is that the process is simpler than you think it is. There are two ways to pay yourself in a single-member LLC.
How To Pay Yourself
Unless the LLC elects otherwise, a single-member LLC is considered a “disregarded entity” and all of the income to the LLC is treated as income to the business owner, and is all subject to self-employment tax. So essentially, as the sole member of a single-member LLC, you can pay yourself from your LLC however, and whenever you want. Just keep in mind these few important considerations:
- Be sure you are prepared to pay taxes. Single-member LLC is a disregarded entity. So, 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. (To make this simpler, 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, bills, 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.
Protect Your LLC’s Finances
Speaking of how to pay yourself, Novo is an awesome banking choice that I recommend. The best part, of course, is it’s totally free. No monthly fees, no minimum balance requirements, no transaction limits, and no fees for ACH or wire transfers. A no-fee business account with Novo is an excellent choice for entrepreneurs and startups. You can use my affiliate link to open your free business checking account with Novo! (I may receive a commission if you open a new account using the affiliate link; however, I am an actual customer and fan of Novo, and my opinions and suggestions are unbiased.)
How much do I allocate to my overhead and expenses?
What exactly should you allocate for overhead and business expenses? Is there a certain percentage? You can figure this out by looking at your tax returns for the next few years or profit and loss statements for the past few years. If your business is new you want to do some budgeting and estimating to figure this out. This will help you determine how much of your business’s profit should be allocated to overhead and expenses, in addition to paying yourself.