Key Takeaway:
A single-member LLC is a limited liability company with one owner. By default, you typically pay yourself through an owner's draw rather than a salary, and the business income is reported on your personal tax return (unless you elect a different tax treatment).
What's a single-member LLC?
A single-member LLC is a business structure with one owner that offers liability protection while maintaining relatively simple tax treatment.
Let’s back up for a moment. The simplest way to create and operate a business is by becoming a sole proprietorship; this is because you automatically become one when you begin working for yourself. With a sole prop, there are no formation requirements beyond any licenses or permits your business may need. However, there is no legal separation between you and your business, which means your personal assets may be at risk if your business is sued or cannot pay its debts.
By contrast, a single-member LLC creates a separate legal entity under state law. While the business is still owned by one person, an LLC generally provides liability protection that can help shield your personal assets from many business debts and lawsuits.
This additional protection comes with responsibilities. Most states require LLC registration, filing fees, ongoing compliance, and in some cases, annual reports or franchise taxes.
Sole proprietorship versus single-member LLC
Feature | Sole Proprietorship | Single Member LLC |
Number of owners | One | One |
State formation required | No | Yes |
Personal liability protection | No | Generally yes |
Separate legal entity | No | Yes |
Ongoing compliance | Minimal | Varies by state |
How do I pay myself from my LLC?
If your single-member LLC uses the default IRS tax classification, you generally do not pay yourself a salary. Instead, you pay yourself through an owner's draw, which means transferring money from your LLC's bank account to your personal bank account.
You can write yourself a check or make an electronic transfer whenever you choose, provided your business has enough cash available.
An owner's draw is not a business expense, so it does not reduce your taxable income. It is simply a withdrawal of business profits.
If you elect S corp status for your LLC, a number of different payment options are available; check out the table below and this post for more details.
Common payment methods:
Situation | How you typically pay yourself |
Default single-member LLC | Owner's draw |
LLC taxed as an S corporation | Salary through payroll plus eligible distributions |
LLC taxed as a C corporation | Salary through payroll |
Owner's draw vs. a salary
Owner's draw | Salary |
Used by most default taxed single-member LLCs | Used when an LLC elects corporate taxation and the owner is treated as an employee |
No payroll required | Payroll required |
No tax withholding | Payroll tax withholding applies |
Flexible timing | Paid on a regular payroll schedule |
Does not reduce business profit | Deductible compensation for the business when applicable |
Example
Imagine that Maria owns a graphic design business organized as a single-member LLC. During the year, the business earns $90,000 in profit.
Each month, Maria transfers $5,000 from her business bank account to her personal bank account. Those transfers are owner's draws, not wages.
At tax time, Maria generally reports the business profit on her personal tax return. Her taxes are based on the business's taxable profit, not on how much money she withdrew during the year.
How am I taxed as the owner of a single-member LLC?
By default, the IRS treats a single-member LLC as a disregarded entity for federal income tax purposes.
That means the LLC does not pay federal income tax separately. Instead, the business profits and losses pass directly to your personal tax return.
You report your LLC income on your individual federal tax return, even if you leave money in the business. Your tax is generally based on the business's profit rather than the amount you withdraw through owner's draws.
Your state may have separate filing requirements, annual reports, or LLC taxes, so be sure to review your state's rules.
Can I choose a different tax treatment?
Yes.
A single-member LLC can elect to be taxed as a corporation. Many growing businesses choose S corporation taxation because it may reduce self-employment taxes in certain situations.
If your LLC elects S corporation status, you are generally required to pay yourself a reasonable salary through payroll before taking shareholder distributions.
This option may provide tax savings for some businesses, but it also increases payroll, accounting, and filing requirements. Because every business is different, it is a good idea to discuss the potential benefits and tradeoffs with a qualified tax professional before making an election.
Common mistakes to avoid
Many new business owners make the same mistakes when paying themselves from a single-member LLC.
Mixing personal and business finances instead of using separate bank accounts.
Assuming an owner's draw is a deductible business expense.
Forgetting that taxes are generally based on business profit, even if you leave money in the business.
Taking large draws without setting aside money for estimated taxes.
Electing S corporation taxation without understanding the additional payroll and filing requirements.
Avoiding these mistakes can make bookkeeping easier and help you stay compliant with tax rules.
Frequently asked questions
Can I transfer money from my LLC to my personal account?
Yes. If your LLC uses the default tax treatment, transferring money as an owner's draw is the standard way to pay yourself.
Do I pay taxes only when I take money out?
No. You generally pay taxes based on your business profit, regardless of how much money you withdraw.
Can I pay myself a salary?
Not under the default tax treatment. A salary generally applies only if your LLC elects corporate taxation.
How often can I take an owner's draw?
There is no required schedule. Many business owners choose weekly, monthly, or quarterly draws based on their cash flow.
Do I need a separate business bank account?
Although requirements vary, maintaining a separate business bank account is considered a best practice because it simplifies bookkeeping and helps maintain the separation between your business and personal finances.
Can I leave money in my LLC?
Yes. You are generally taxed on your share of the business profit even if you leave some or all of the money in the business for future expenses or growth.
Can I change from a sole proprietorship to a single-member LLC?
Yes. Many business owners begin as sole proprietors and later form a single-member LLC as their business grows or they want additional liability protection.
Can my single-member LLC have employees?
Yes. A single-member LLC can hire employees. If you do, you will need to follow applicable payroll and employment tax requirements.
What’s a Single-Member LLC? How Do I Pay Myself as the Owner of One?
