How Should I Pay Myself as a Business Owner?

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Ways to Pay Yourself as a Small Business Owner

  • Owner’s Draw
    Owner’s draw is when you take — or draw out — money from the business to use for personal expenses. This can be done at any time and for any amount.

  • Salary
    A business owner can pay themselves a salary—a fixed amount set aside to pay themselves each month or year, regardless of how much profit the business makes.

Calculating Fair Compensation

  • Depending on how young your business is, there are two ways you can calculate how much to pay yourself:
    1. Pay yourself enough to meet living expenses.
    2. Paying yourself only when you think there is enough money in the bank creates stress and uncertainty.

Impact of Compensation on Taxes

When it comes to paying yourself, it’s important to understand how your compensation will impact your personal taxes.

Paying Yourself as an LLC Owner

As an LLC owner, you can get paid in various ways. For single-member LLCs, owners can take draws from profits. For multi-member LLCs, partners divide draws and distributions. LLCs taxed as corporations require owners to take salaries meeting IRS requirements, in addition to draws.

Tips for Paying Yourself Fairly

  • Be fair about it. Pay yourself a consistent amount at frequent intervals.

Owner’s Draw Method

  • Owner’s draw is a way for business owners to pay themselves from their business profits in flexible amounts as they need it. New LLCs, partnerships, and sole proprietorships with low or inconsistent income benefit most from using owner’s draw.

Paying Yourself Appropriately

  • How much should you pay yourself as a business owner? Small business owners should pay themselves a salary when their businesses are profitable. Base your salary on your net business income, after setting aside 30% for taxes.

Considerations for Business Owners

  • The two main ways to pay yourself as a business owner are owner’s draw and salary. An owner’s draw is a one-time withdrawal and depends on your owner’s equity. Salary is a regular, fixed payment like an employee would receive. Consider your profits, business structure, and business growth when deciding how to pay yourself as a business owner.

Payment Methods for LLC Owners

  • Single-member LLCs are taxed as sole proprietorships. Multi-member LLCs default as partnerships but can elect corporation status.

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