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
  • Brian

    Hi, I am starting a single-member LLC. If I use my personal credit card for buying a business related item, then can it be considered as a business expense? If so, how can I do that? (like reimburse from the business account)

    Reply
    • Gusto Editors

      Hi Brian — it is possible to use a personal credit card for your business transactions. You can indeed reimburse yourself for genuine business expenses, but it is usually helpful to keep meticulous records in case of an audit. You can learn more here and here.

      Reply
  • April Hall

    Hi I am trying to start a home customer service business. I will be the only person. Is a LLC the best choice?

    Reply
    • Gusto Editors

      Hi April, thanks for reaching out! Picking your business entity is a huge step, and you’ll want to weigh all the pros and cons of each business entity. You may want to read our article on the different types of business entities, their pros and cons, and from there you can be better informed as to what choice best fits your needs: https://gusto.com/blog/start-business/which-business-structure

      Reply
  • Jordan

    Hello everyone! Interesting article. I found out after reading that there are some items I had right and others that are wrong! Leading me to filing an amended return. Before I do, I wanted to throw this out for some ideas..

    I filed my personal tax return for 2019 which included my LLC, however I had a few employees temporarily and included myself as one too. Right there is where my error occurred because I paid taxes out of my paychecks and I also paid self employment tax. My question is: should I be utilizing workers and paying them as 1099G contractors if I am not listed on payroll? I definitely believe that I have been double taxed since I began this business in 2018. Really looking for some insight! Thanks for reading..

    Reply
    • Gusto Editors

      Hi Jordan — it seems like you need to decide whether it makes more sense for you and for your business if your LLC is taxed as a sole proprietorship or a corporation. You can check out some resources about that decision here. If your business is a sole proprietorship, its profits and losses will be passed on to you, meaning you don’t need to file a separate federal tax return for the LLC. You’ll just report all of your LLC income on your personal federal tax return. If you decide instead that you’d prefer for your LLC to be taxed as a corporation, and if you are involved in the day-to-day operations of the company, then generally you would be considered an employee and may be required to pay yourself through payroll. To answer your question, you will be able to pay contractors or hire employees either way. To clarify, however, a 1099G form is meant specifically for income earned from a government source, which doesn’t seem to be what you have in mind here. Any contractors you pay for projects will likely be 1099 contractors, which generally require a 1099-MISC (for years prior to 2020) or a 1099-NEC (non-employee compensation) for tax year 2020 going forward.

      Reply
  • Don Roth

    Can you comment on single member LLC solo 401k limits and how to calculate if you are doing owners draw (not taking salary)? How do you contribute to solo 401k as both employee and employer?

    Reply
    • Gusto Editors

      The total solo 401(k) contribution limit in 2020 is a maximum of $57,000 with an additional catch-up contribution if you’re 50 or over. This total amount includes your contributions as both employer and employee. In 2020, the solo 401(k) contribution limit as an employee is $19,500 for those under 50. As an employer, you’re able to contribute up to 25% of your total compensation. Because an owner of a single-member LLC does not take a salary or wages, your owner’s draw is your compensation.

      Check out our blog post for more information on solo 401(k) plans and other retirement options. Your solo 401(k) provider can help you adjust your contributions based on your unique financial situation and retirement goals.

      Reply
  • Janice M Harper Baptiste

    Hi…l want to start a home based assisted living home for
    veterans… I will need help 2-3 employees… would I be considered a one owner LLC.

    Reply

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