Believe it or not, one of the most asked questions of a new LLC owner or officer is:
How do I pay myself?
And that’s a great question. It’s not as easy as just taking what you need when you need it. Once you’ve formed your LLC, there are formalities in place that govern just how it’s done.
You have three options:
Pay Yourself Like an Employee
For those who like getting a regular paycheck, this may be the best option for you. The salary that you take must be reasonable, or within industry norms. But you may pay yourself bonuses.
The main stipulation is that you must have an actual role with real responsibilities.
Pay Yourself With Distributions from LLC Profits
With this option, you can receive a distribution of the LLC profits each year, which you could set up as monthly draws.
Each member of an LLC owns a percentage, which is called a capital account. At the end of each fiscal year, distributions are made based on these percentages. For example, if an LLC of four members has a profit of $100,000, each member would receive $25,000.
Pay Yourself As An Independent Contractor
If you’d like to explore another option, you can actually hire yourself as an independent contractor that is doing work for the LLC.
As far as any additional benefits with this route, there really aren’t any. But another thing to note is that you’re responsible for paying self-employment taxes on what you earn.
Ready to form your LLC? Get started.
