As an enterprise owner, you have many options for paying yourself, but each comes with tax significance.
Creating a limited liability company or LLC can be an excellent way to manage your company and guard yourself against liability. Nevertheless, you still need to earn a living, so you may be wondering, “How to pay me from my LLC company?”
The two common choices are to treat yourself as an employee with wages or as an LLC company member and acquire distribution from the profits.
Delivering Yourself as a Wage Earner
Paying yourself from an LLC company as an employee lets you receive a regular payment plan throughout the year, which can be extremely helpful if you seek a steady income.
It would help if you were actively working in the company to pay yourself wages or a salary from your single-member LLC company or other LLC company . You need to have an actual role with absolute obligations as an LLC company owner.
Where there are multiple owners, if all LLC company members partake equally in the company‘s function, you can’t pay one a salary and not the others. Nevertheless, if you are the only association with a management role, you can pay yourself a wage without paying up wages for the other participating LLC company members.
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Worker wages are considered operating costs for the LLC company and will be removed from the LLC company profits. The Tax inspection only allows reasonable wages as a deduction, so be sure any salary you pay yourself is within industry norms. You can also issue dividends to LLC company members who are employees, including yourself. Furthermore, these must be reasonably related to the salary being paid.
You will pay income tax on your wages earned. The LLC company will pay you as an employee and withhold income and employment taxes from your earnings.
Receive Allocations from LLC Profits
Another choice for paying yourself in an LLC company is to acquire distributions of profits from the LLC each year. Each partner owns a percentage of the LLC company , called their capital account. Year-end earnings distributions are made based on that rate. So if the LLC had $100,000 in earnings and you and the other member each own 50%, you can each receive $50,000.
If you expect your share of the year-end profit to be $12,000, you could set up an interest to receive $1,000 each month. You also could arrange a draw to receive continued payments as a draw against the year-end profit. All the attractions throughout the year are removed from the total year-end gain. So if your request for the year totaled $12,000, but your share of the profit ends up being $15,000, then you would acquire $3,000 at the end of the year.
If you are the only member of the LLC company , you will pay income tax on your distributions, and you will file Schedule C to report the profits and losses of the LLC company with your tax return. If there is more than one member, the Tax authorities treat the LLC company as a partnership, and you each report your share of the profit and pay income tax on that.
It’s important to note that receiving a salary and receiving year-end distributions are not mutually exclusive. If you get a paycheck, you’re still a member of the LLC company and entitled to your year-end distribution.
Work as an Independent Contractor
A third option for paying yourself is to hire yourself as an independent contractor, working for the LLC company you also own.
Here is an example: If you are a member of an LLC company that prints signs, you can hire yourself as an independent contractor to design the characters’ graphic design. This type of arrangement may not offer as many benefits, though.
If you choose to pay yourself as a contractor, you need to file additional reports to Tax authorities at the end of the year. You will be responsible for paying self-employment taxes on the amount earned.
How to start your LLC
- Please tell us your business name if you’ve picked one;
- Reply a few questions;
- We’ll conclude and file your paperwork.
Choose Not to Accept Payments
You furthermore have the option not to pay yourself anything and leave the LLC company earnings. You still will need to pay income tax on the profits earned since the revenues from your LLC company pass through to your tax return.