Paying Yourself from an LLC
You pay yourself from your single member LLC by making an owner’s draw. Your LLC is a “disregarded entity.” That means your company’s profits and your own income are one and the same. However, if you decide to file Form 8832, you can request the LLC be treated as a corporation. That way you can be treated as an employee, be on payroll, and receive W-2 income.
LLC Tax Classification and Member Compensation
For tax purposes, a single-member LLC’s owner is treated as a sole proprietor, and owners of a multi-member LLC are treated as partners in a general partnership. Accordingly, LLC owners are not eligible to receive compensation as W-2 wages.
An LLC taxed as a partnership is a pass-through entity. LLC payroll taxes are those taxes paid if you have employees.
Salary vs. Owner’s Draw
Should I put myself on a payroll for my LLC?
Yes, you can pay yourself as an employee of your LLC, depending on the way you are taxed. The best way to pay yourself will depend on your purpose. For instance, if you need proof of income, then putting yourself on the company’s payroll might be sensible.
Should I pay myself a salary from my LLC?
For many LLC owners, treating themselves as employees is advantageous. Once you determine that a salary is the best option, you need to set up payroll, calculate the salary amount, withhold taxes, and pay yourself regularly.
The disadvantage of paying yourself as an employee is that you have to comply with various tax requirements such as filing Forms W-2, 941, 940, and state/local returns, and you also have to pay employer’s share of taxes.
To be straightforward, if you are registered with the IRS as an S Corporation, you should absolutely pay yourself, since the payroll rules are very clear: you are considered an employee of your S Corporation.
Default LLCs allow for direct payments via owner’s draws. In a fast-growing LLC taxed as a corporation, you have more options to get paid, including wages as an employee while still remaining eligible for dividends from the business profits.
Can an LLC Write Off Payroll?
Can an LLC write off payroll?
When your business is classified as a sole proprietorship or partnership, you can pay yourself from the business income, but it will not be tax-deductible. However, payments to employees and the associated taxes can be deductible business expenses for the LLC.