If you’ve ever hesitated before moving money from your LLC into your personal account, you’re not alone. There’s a good reason this feels confusing. The rules for paying yourself depend on how your LLC is set up and taxed. Get it wrong, and you could face surprise taxes or even risk your legal protections.
But here’s the good news: Once you understand the basics, withdrawing money from your LLC can be simple and stress-free. Let’s break it down so you can feel confident every time you tap into your business income.
What type of LLC do I have, and why does it matter?
Not all LLCs are treated the same when it comes to taxes and payouts.
- Single-member LLC: You’re the only owner. For tax purposes, the IRS sees you as a sole proprietor (unless you’ve elected otherwise).
- Multi-member LLC: There are two or more owners. These are taxed as partnerships by default.
- LLCs that elect corporate tax status: Either S-corporations or C-corporations, depending on the election filed with the IRS
Why this matters: Your LLC’s structure determines whether you can simply take a draw or if you need to run payroll. It also impacts how (and when) taxes get paid. For example, sole proprietors and partnerships typically take draws, while S-corp and C-corp owners need to run payroll.
How does the way I pay myself affect my taxes?
Let’s break down how withdrawals affect your taxes based on your LLC type.
Single-Member LLC (Default: Sole Proprietor)
- You don’t take a salary; you take an owner’s draw
- Income is reported on Schedule C of your personal tax return
- You’ll pay self-employment tax (Social Security + Medicare) on all net income
Multi-Member LLC (Default: Partnership)
- Owners take distributions, not salaries
- Income is reported on Form 1065, and each partner receives a K-1
- Each member pays self-employment tax on their share of income (unless they’re passive investors)
LLC Taxed as an S-Corporation
- You must pay yourself a reasonable salary via payroll, and withhold taxes
- Additional profits can be paid out as distributions, which are not subject to self-employment tax
LLC Taxed as a C-Corporation
- You pay yourself a salary, taxed through payroll
- Any profits paid out beyond salary are dividends, which are taxed again on your personal return (yes, that’s double taxation)
Remember: If you’re paying yourself a salary (like in an S-corp), you’ll pay payroll taxes on that amount. But additional profits can be taken as distributions, and those usually aren’t subject to self-employment tax.
How do I actually move the money?
Let’s walk through how to pay yourself, and how to document it so the IRS doesn’t come knocking.
Owner’s Draw
- Allowed for sole proprietors and partnerships
- Transfer money from your business account to your personal one
- Record it as an owner’s draw, not a business expense, and not income
Owner’s Salary
- Required for S-corps and C-corps
- Run payroll (yes, even for yourself), withholding appropriate taxes
- Report via W-2 at year-end
Distributions (S-corps)
- Taken in addition to a reasonable salary
- Transferred like a draw but classified as “distribution of profits”
- Must be recorded properly to avoid IRS issues
Dividends (C-corps)
- Paid from after-tax profits
- Shareholders receive Form 1099-DIV for tax reporting
Yes, you can Venmo yourself. Just label the transaction clearly and make sure it matches your books on both ends. The key is clean, consistent documentation.
Mixing Business and Personal Money
It’s tempting to just swipe your business card or transfer funds casually, but this is called commingling, and it can:
- Jeopardize your liability protection
- Make bookkeeping a nightmare
- Raise red flags in an audit
Here’s how to keep things clean:
- Keep separate bank accounts (business and personal)
- Never pay personal expenses directly from the business account
- Always label transfers clearly (e.g., “Owner’s Draw – July”)
- Use accounting software or a simple log to track withdrawals
Messed up? Don’t panic. A CPA can help reclassify transactions properly.
Tax Moves to Avoid Year-End Surprises
Taxes don’t wait until April, and neither should you.
Estimated Quarterly Taxes:
- Required if you expect to owe $1,000 or more in taxes for the year
- Applies to sole proprietors, partners, and S-corp owners (on pass-through income)
Self-Employment vs. Payroll Tax:
- Draws (sole props/partnerships) = income subject to self-employment tax
- Distributions (S-corps) = not subject to self-employment tax
- Salaries = payroll tax (with employer and employee shares)
Recordkeeping Tips:
- Keep a withdrawal log
- Categorize income and withdrawals accurately
- Store backup documentation in case of audit
How can I make sure I’m following the rules?
Start with your operating agreement. It should outline how withdrawals should be handled. Don’t have one? It’s worth creating, even if you’re a solo business owner.
Best practices:
- Review your agreement for payout rules
- Keep documentation for every withdrawal
- Separate funds and accounts, always
- Use software (or a spreadsheet) to track everything
When to call in a pro: If you’re making regular payments to yourself, managing payroll, or unsure how to classify income, a CPA or tax attorney can offer peace of mind (and save you from costly mistakes).
What if I’ve already pulled money from my LLC?
Already made a few transfers? No problem. Here’s how to check whether you handled them correctly:
- Look back at each transfer from business to personal accounts
- Check how it was categorized, draw, salary, distribution?
- Compare it to your LLC’s tax setup
If something’s off:
- Reclassify the transaction correctly
- Add notes or memos explaining the change
- Consider amending records or filings, if necessary
Most mistakes can be fixed. What matters is catching them early and documenting corrections properly.
The Bottom Line
Getting paid from your own business shouldn’t feel like navigating a legal obstacle course. When done right, it’s a simple, routine process that keeps you compliant, protects your LLC status, and helps you avoid tax surprises.
Whether your income comes from consulting or product sales, the essentials are the same. Know how your LLC is taxed. Follow the right withdrawal method. Keep your records clean and accurate.
Already taken money out and not sure you did it correctly? Don’t panic. Most issues can be fixed, and the fact that you’re asking these questions puts you ahead of the curve.
Not sure where to start? Book a free call with the DiMercurio team and get clarity on how to pay yourself the right way, with no second-guessing.
