Q: What’s a Single-Member LLC? How Do I Pay Myself as the Owner of One?

A single-member LLC is a type of business structure that’s an alternative to being a sole proprietorship.

If you choose to be a sole proprietorship, you don’t have to do anything other than work for yourself. There are no fees or rules to become one (though there are requirements if you decide to hire employees). Because you and your business are treated as one and the same, the downside is your personal assets are at risk if your business runs into financial trouble.

Alternatively, if you want some more protection, you might choose to form a single-member limited liability corporation, which is an LLC with one owner.

You get to have “LLC” in your business name, and as the name states, it protects your personal assets and limits your liability against lawsuits and creditors.

But those benefits come with a downside: LLCs have to pay to be registered with your state, are subject to governing laws, and may have to pay annual registration fees.

How do I pay myself from my LLC?

As the owner of a single-member LLC, you don’t get paid a salary or wages.

Instead, you pay yourself by taking money out of the LLC’s profits as needed.

That’s called an owner’s draw. You can simply write yourself a check or transfer the money from your LLC’s bank account to your personal bank account. Easy as that!

How am I taxed as the owner of a single-member LLC?

The IRS treats single-member LLCs as sole proprietorships by default, which means your LLC will been seen as a “disregarded entity.” So instead of the LLC paying income tax, its profits and losses are passed on to you.

In other words, you don’t need to file a separate federal tax return for the LLC. As the sole owner, you’ll report all of your LLC income on your personal federal tax return. Your state, however, may have tax filing requirements for LLCs, so make sure to check your state’s rules.

If you prefer, you can choose for your LLC to be taxed as a corporation. If you do that, you’ll be considered an employee, and you may be required to pay yourself through payroll

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Taking this route can reduce your self-employment taxes, but it can also result in more paperwork at tax time and may have other tax consequences, so be sure to talk through the pros and cons with your accountant first.

Comments

  • Laura Barry

    Do I have to have an LLC as a sole employee of my company I have a tax receipt

    Reply
    • Gusto Editors

      Hi Laura! You’ll want to speak with your attorney or CPA about this, as they’ll be able to provide advice specific to your situation.

      Reply
  • Lavette R. Bartley

    What’s the best way to start an LLC for my son?

    Reply
  • Carmen DP

    I am a single member of an LLC in the state of CT. It says I can pay myself either as a draw or W2. Can I pay myself via a W2 and still file via 1040?

    Reply
    • Gusto Editors

      Hi Carmen! Since tax rules change over time and can vary by location and industry, we recommend you consult a CPA or tax advisor!

      Reply
  • Debra L Dodds

    So as a single member llc seen as a sole proprietor, if I pay myself a salary it is not recognized as a salary by the IRS but as a draw, cuz my llc cant pay taxes, the taxes are passed onto me on my personal taxes 1040 tax form, so I could pay myself a salary and call it a draw at tax time, or is that wrong also?

    Reply
    • Gusto Editors

      Hi Debra! Since tax rules change over time and can vary by location and industry, we recommend you consult a CPA or tax advisor!

      Reply
  • Raj

    Just for general understanding while comparing a Disregarded Entity to a S-Corp:

    (Question#1) – Is this correct:
    If my business makes $100, in a disregarded entity I’m taxed at my personal tax rate for the full $100, including self-employment taxes on the full amount, and write myself an owner’s draw check for the amount I’d like to personally spend.

    Whereas if my business was a S-Corp that makes $100, I pay my income tax rate including SE taxes on ~60% of it, where the other ~40% only pays 15% as a disbursement income?

    (Question #2)
    If a business gets a loan, can the loan be used as an S-Corp’s employment payments (W2s and disbursements) as well as a Disregarded Entity’s owner’s draw? The assumption is that the business will make all the loan payments until paid off completely. If so, is tax only owed on the income? Or is it also owed on the W2 & disbursement or owner’s draw?

    Or is it different between S-Corp and Disregarded Entity?
    I’m asking because it *sounds* like double taxation when a loan is involved… and I can’t get my head around it.

    Reply
    • Gusto Editors

      Hi Raj, since tax rules change over time and can vary by location and industry, we recommend that you consult a CPA or tax advisor for specific guidance on this question.

      Reply
  • David Martinez

    I am starting an LLC and was told that i need to setup up payroll for myself. I am an employee of the company and there needs to be one W2 employee. True?

    Reply
    • Gusto Editors

      Hi David, if you’ve chosen for your LLC to be taxed as a corporation, you’ll be considered an employee, and you may be required to pay yourself through payroll. We do recommend consulting a CPA or tax advisor for more specific guidance!

      Reply
  • Stephanie

    Form 568 LLC

    I answered no to M (1)

    What does this line mean on line M (2) ?
    If “no” was this LLC registered in California without earning any income source in this state during the taxable year?

    Not sure how to answer it if my LLC was registered in the state of California and did make an income?

    Reply
  • Haydee Vega

    Hi I’m starting a LLC Business. And wanted to know how can I pay my self

    Reply
    • Gusto Editors

      You’ve come to the right place! Our blog post is a great starting point to learn how to pay yourself as a single-member LLC — let us know if you have any questions about the information in here!

      Reply
  • Carl Smith

    Hi I’m Carl and I was wondering just that .How and where do I start up a llc. I’m located in Summerville,S.C.

    Reply

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