"How do I pay myself?" is the most-asked question in our inbox. Answer depends entirely on how your LLC is taxed — not on the LLC itself. Here's the plain-English version for the three setups we see every week.
Single-member LLC (default — sole prop for tax)
- Pay yourself by owner draw — transfer from business checking to personal.
- No payroll. No W-2. No 1099 to yourself.
- You owe self-employment tax (15.3%) + income tax on all profit, draws or not.
- Set aside ~25–30% of every draw into a tax bucket. Pay quarterly estimates.
Multi-member LLC (default — partnership for tax)
- Pay yourself with guaranteed payments (like a salary, but no payroll) and/or distributions of profit per the operating agreement.
- Still no W-2. Still subject to self-employment tax.
- Each partner gets a K-1 at year end.
- Same 25–30% tax bucket rule applies.
LLC taxed as S-corp (the upgrade most owners want at $80k+ profit)
- Pay yourself a reasonable W-2 salary through real payroll — withholdings, FICA, the whole deal.
- Take the rest as distributions (no self-employment tax).
- This is where the tax savings come from — but only if the salary is genuinely reasonable for your role. The IRS audits the low-ballers.
- Add an accountable plan to reimburse home office, mileage, and phone tax-free. Most owners miss this and leave $3k–$8k on the table.
What "reasonable" actually means for S-corp salary
IRS looks at what someone else would charge to do your job. Owner of a $400k revenue HVAC company doing sales, dispatch, and books? A $30k salary will get flagged. A $75k–$95k salary with the rest distributed is defensible. We help clients land on the number with a one-page reasonable comp study.
The Profit First version (what we actually recommend)
- Open separate accounts: Income, Profit, Owner's Pay, Tax, OpEx.
- Twice a month, sweep Income into the buckets by percentage.
- Pay yourself from Owner's Pay (draw or W-2, depending on election).
- Pay quarterly taxes from Tax. Take Profit quarterly. OpEx funds team payroll + everything else.
The 4 mistakes that cost owners the most
- Treating draws as "income they spent" instead of pre-tax money — surprise tax bill in April.
- Running an S-corp without payroll — IRS reclassifies distributions as wages + penalties.
- Skipping the accountable plan — leaves real money on the table every year.
- Paying themselves "whenever there's extra" — there's never extra.
We run payroll, the accountable plan, and the Profit First buckets for LLC owners in CA, NV, and AZ. Whether you're a single-member contractor or an S-corp restaurant group, the mechanics are the same — pay yourself first, set aside taxes automatically, and stop guessing.
