How to Pay Yourself as an LLC Owner in 2026

If you’ve formed an LLC, you’ve probably asked this question already.

How do I actually pay myself?

Paying yourself the wrong way can create IRS issues, messy books, and missed tax savings. Paying yourself the right way keeps your finances clean and helps you understand what you’re really earning.

In this guide, we’ll walk through exactly how to pay yourself as an LLC owner in 2026, based on what the IRS allows, how your LLC is taxed, and how each method affects your taxes.

 

TLDR

How you pay yourself as an LLC owner in 2026 depends on how your business is taxed. Single-member LLC owners usually take owner draws. Partners use draws or guaranteed payments. LLCs taxed as S corporations must pay owners a reasonable salary through payroll and take additional income as distributions. Paying yourself the wrong way can create IRS issues, messy books, and missed tax savings. Getting the structure right keeps you compliant and helps you keep more of what you earn.

 

Why Paying Yourself Correctly Matters

How you pay yourself is determined by your entity type and tax election. The IRS has specific rules for how business owners are paid, depending on how the LLC is taxed.

Paying yourself properly helps you:

• Avoid audit triggers
• Stay compliant with IRS rules
• Keep clean accounting records
• Understand why profit and cash don’t always match
• Plan taxes instead of reacting to them

There are compensation methods that are not allowed depending on how your LLC is set up. That’s why understanding your options matters before moving money.

 

 

How to Pay Yourself as an LLC Owner in 2026 Based on Your Entity Type

There are 3 primary ways LLC owners pay themselves.

• Owner draws or distributions
• Payroll
• Guaranteed payments

There’s also a fourth term you may hear, dividends, but that generally applies only to C corporations. Most LLC owners won’t use dividends.

 

Owner Draws and Distributions Explained

An owner draw is the most common way LLC owners pay themselves.

You transfer money from your business bank account to your personal account. That transfer is your pay.

There’s no tax withholding when you take a draw. You’ll pay taxes later when you file your return.

Here’s the part many owners misunderstand.

An owner draw is not a business expense.

That means:

• It does not reduce business income
• It does reduce your bank balance
• It shows up on the balance sheet, not the income statement

If your business earns $100,000 and you take a $100,000 draw, you’re still taxed on $100,000 of income.

 

Payroll for Business Owners

Payroll means paying yourself as a W-2 employee. The IRS requires S corporation owners to take a reasonable salary before distributions.

When payroll is allowed, it:

• Is a business expense
• Reduces taxable income
• Requires income tax withholding
• Requires Social Security and Medicare taxes
• Requires payroll tax filings

Payroll isn’t optional when it’s required, and it isn’t allowed unless your LLC is taxed the right way.

Because of the filings and calculations involved, payroll should always be run through proper payroll software.

 

Guaranteed Payments for Partnerships

Guaranteed payments are most common in multi-member LLCs taxed as partnerships.

They’re used when partners agree in advance that one or more partners will be paid a fixed amount for work performed, regardless of profit.

From a tax perspective:

• Guaranteed payments reduce business income
• The receiving partner reports the income on their K-1
• Self-employment taxes usually apply

Guaranteed payments are typically documented in the operating agreement.

 

Why Dividends Usually Don’t Apply to LLCs

Dividends are generally limited to C corporations.

They don’t reduce business income and are taxed twice. Once at the corporate level and again when paid to the owner personally.

Most LLC owners won’t deal with dividends unless they intentionally choose a C corporation structure.

 

How to Pay Yourself as a Single-Member LLC Owner

If you’re a single-member LLC with no S corporation election, there’s only one legal way to pay yourself.

Owner draws.

You are not allowed by law to run payroll to yourself as the owner.

If you’re currently paying yourself through payroll as a single-member LLC without an S corporation election, that should be corrected.

To pay yourself properly:

• Transfer money from the business account to your personal account
• Record it as an owner draw
• Plan separately for taxes

How to Pay Yourself in a Multi-Member LLC

If your LLC has multiple owners and is taxed as a partnership, you have two options.

• Owner draws
• Guaranteed payments

Just like single-member LLCs, partners are not allowed to take payroll as owners unless there’s an S corporation election in place.

Payroll is only for employees in this structure.

 

How to Pay Yourself as an S Corporation Owner

This is where payroll becomes required. 

If your LLC elects to be taxed as an S corporation, you must take a reasonable salary.

That salary:

• Is paid through payroll
• Is subject to payroll taxes
• Is a deductible business expense

Anything above that salary is taken as a distribution.

This structure is popular because distributions are not subject to self-employment tax, which can lead to tax savings when done correctly.

The key is reasonableness. Underpaying yourself to avoid payroll taxes is a common IRS red flag.

 

How Owner Pay Shows Up in Your Books

Owner draws:

• Reduce cash
• Increase owner equity
• Do not reduce income

Payroll:

• Reduces cash
• Reduces income
• Requires payroll filings

This distinction explains a common frustration for business owners.

 

Putting It All Together

To pay yourself correctly as an LLC owner in 2026:

• Confirm your entity type and tax election
• Use the correct payment method
• Set a consistent system for draws or payroll
• Use payroll software when required
• Plan for estimated tax payments

As a business owner, no one is withholding taxes for you. Making estimated tax payments throughout the year is one of the most important habits for business owners. Planning ahead is what prevents surprises. 

How you pay yourself affects your taxes, your compliance, and your clarity around money.

When it’s done right, it supports tax savings and clean financials. When it’s done wrong, it creates confusion and risk.

 

 

FAQ: How to Pay Yourself as an LLC Owner in 2026

How do LLC owners pay themselves?

LLC owners pay themselves using owner draws, payroll, or guaranteed payments, depending on how the LLC is taxed. Single-member LLC owners usually take owner draws. S corporation owners must take payroll plus distributions. Partnerships use owner draws or guaranteed payments.

Can an LLC owner be on payroll?

Only if the LLC has elected S corporation tax status. Without an S Corp election, LLC owners are not allowed to run W-2 payroll to themselves. Running payroll as a single-member LLC or partnership owner is not permitted under IRS rules.

What is the difference between an owner draw and a salary?

An owner draw is a transfer of money from the business to the owner and does not reduce business income. A salary is paid through payroll, is a business expense, and reduces taxable income. Salaries also require payroll tax withholdings.

Do owner draws reduce taxable income?

No. Owner draws do not reduce taxable income. They only reduce the business’s cash balance and increase owner equity. Taxes are still owed on the full business profit.

How should a single-member LLC pay the owner?

A single-member LLC without an S corporation election should pay the owner using owner draws only. Payroll is not allowed for owners in this structure.

How should partners in a multi-member LLC pay themselves?

Partners can take owner draws or receive guaranteed payments. Payroll is not allowed for LLC owners in partnerships unless the business has elected S corporation tax status.

What is a guaranteed payment in an LLC?

A guaranteed payment is a fixed payment made to a partner for services performed, regardless of profit. It reduces business income and is reported as income to the partner, usually subject to self-employment tax.

How does an S corporation owner pay themselves?

An S corporation owner must take a reasonable salary through payroll and can take additional income as distributions. The salary is subject to payroll taxes, while distributions are not subject to self-employment tax.

What is a reasonable salary for an S corporation?

A reasonable salary is based on the work performed, industry standards, and time spent in the business. Paying too little salary to avoid payroll taxes can trigger IRS scrutiny.

Why does my LLC show a profit but not much cash?

This usually happens because owner draws do not reduce profit. The business may be profitable on paper, but cash is lower due to draws, loan principal payments, or other balance sheet transactions.

Do I need to make estimated tax payments as an LLC owner?

Yes. LLC owners are responsible for paying their own taxes. Estimated tax payments help avoid penalties and large tax bills at year-end.

TRANSCRIPT

[00:00:00] 

Introduction: How to Pay Yourself from Your LLC

All right. You formed your LLC. Great, but now the big question, how do you pay yourself without messing up the taxes or triggering penalties? In this video, I’m gonna break down the exact process to pay yourself as an LLC owner in 2026. I’m gonna talk about what you need to know about salary versus distributions and how to keep your books clean.

Let’s get that paycheck flowing. Alright, so there are many different ways to pay yourself, but your entity type and how you’re taxed. Is gonna matter. 

Why Proper Payment Matters

But first, let’s talk about why paying yourself properly even matters. First off, it can avoid audit triggers. There are some ways that you could potentially pay yourself that are not even legal with certain entity setups, and we’re gonna walk through what that might look like.

It also creates clean [00:01:00] accounting, which hit, which makes everything much simpler from a tax perspective, but also in the event of an audit. It helps protect yourself knowing that you’re setting this up and doing things correctly. So let’s talk about some ways to pay yourself, and we’re gonna talk about three main ones and then a fourth one that, that typically doesn’t come into play with LLCs, but we’re just gonna talk about it anyways.

Just so you know, it’s there in case you hear some of that terminology set up. 

Methods to Pay Yourself

So the first way to pay yourself is an owner’s draw or distribution. This is simply taking money from the business account and transferring it to your personal account. That’s an owner draw or distribution. Taking money from the business account, transferring it to your personal account.

With an owner draw distribution, you don’t need to withhold any taxes. When you make that transfer, you’re gonna pay taxes. On the back end. So let’s talk about the tax piece for owner draws and distributions. A draw is not a business expense. So when you take a draw, it does not reduce business income. So let’s say you had a hundred thousand dollars in business income and you took a hundred thousand dollars draw, guess what?

You still have a hundred thousand dollars in business income because a draw [00:02:00] does not reduce your income. We’re gonna go through an example of that a little bit later. The second way you pay yourself is payroll. And payroll is just basically running a W2 payroll for to yourself as a W2 employee. And when you run payroll, that’s a business expense.

You’re gonna have to do income tax withholding, you’re gonna have to do FICA tax, withholdings, state unemployment, federal unemployment, withholdings, and all those different things. So payroll is what? Typically what you think of when someone works for another company, another employer, W2 employee, that’s payroll, and that’s that process of running payroll.

We always recommend utilizing some type of service to help with that payroll processing. The third way to pay yourself is something called a guaranteed payment. And typically this is in partnerships and usually it’s agreed upon and say, let’s say you have three partners in a partnership, and we say, okay, this partner’s gonna be operating the business and we’re gonna guarantee you we’re gonna make a guaranteed payment that we’re gonna pay them $5,000 a month for the work that they’re doing.

That’s how a guaranteed payment works, and it’s typically gonna be part of your operating agreement, something that’s agreed upon beforehand. [00:03:00] Now, from a tax perspective, a guaranteed payment does reduce business income. But the partner that’s receiving that guaranteed payment is gonna report it as income on their specific K one, and generally they’re gonna pay self-employment taxes on it.

Now, the fourth way, and again, this doesn’t come into play with lcs, but I just wanna talk about it because you might hear this terminology being pushed around and that is a dividend. This is more rare. This is only typically with C corporations, and this is where that double tax comes in because is, it doesn’t count as a business expense when you take a dividend.

And so with a C corp. You have, you pay taxes at the corporate level. You pay a corporate tax based on the profit of the business. And then when you take a dividend money to yourself as the owner, you pay taxes at that again, on the personal level. And that dividend doesn’t reduce income. And so that’s where that idea of double taxation comes from.

So three main ways for inhouse to pay themself, owners draw distributions, payroll, and guaranteed payments. Now, next we’re gonna talk about, based on the type of entity that you have, how you are structured, which one of those methods you are [00:04:00] legally allowed to do. Now, just a quick heads up, if you haven’t grabbed our free tax saving starter kit, now’s your chance.

Thousands of business owners have downloaded it to stop overpaying and start deducting taxes the right way. Inside, you’re gonna get our real tax savings examples, our full deduction guide, and a discovery call. To talk strategy with our team, go to tax savings podcast.com/starter kit before you forget.

Entity Types and Payment Methods

Okay, so now let’s look at entity types and how you are organized and how you specifically should be paying yourself because that’s important. We talked about the options. Those options are not available to everybody. How you setup is gonna determine what options are available to you specifically. So let’s start first with a sole proprietorship or a single member LC.

So you’re just a single member, LC, no S corporation, no partnerships. You have one way to pay yourself, and that is an owner’s draw. Transfer money from the business account to your personal account. Now an owner’s draw not gonna reduce income again, but you just transfer money from the business.

To the personal account, you as assault, ridership, or single member [00:05:00] LC no. As corporation, you are not allowed by law to take W2 payroll to yourself as the owner. So if you are a single member, LC and you’re running payroll to yourself, stop, you’re not allowed by law to do that. The only way to pay yourself is a single member, LC.

It’s an owner’s draw. Take money from your business account, transfer it to your personal account. Now let’s talk about a partnership with a partnership. That’s where you have an LLC with multiple owners. There’s two ways that you can pay yourself and you don’t have to do both of them. You can do one or the other or both.

And that would be an owner’s draw. Or a guaranteed payment. So an owner’s draw, transfer money from the business account to the personal account. A guaranteed payment would be that, again, that pre-arrange agreement with specific partners saying, Hey, we’re gonna pay you this amount per month. Again, you’re gonna transfer that to them again with a partnership.

As owners of a partnership, you are not allowed by law to take payroll to yourself as the owner. Now, if you have employees, of course you’re gonna run payroll to them, but as the owner, you are not recorded by law. You are not allowed by law. To take payroll as the owner of the business. So something to keep in mind.

Now, let’s talk about S Corporations. So this would be if you have an LLC or even a partnership [00:06:00] LLC that you elect for that LLC to be taxed. As an S corporation to help minimize the amount that you pay in self-employment taxes. With an S corporation, there are two ways that you’re gonna pay yourself an owner’s draw or distribution plus payroll.

And with an S corporation, you’re required by law to take a reasonable salary. So with a single umbrella C or a partnership, you’re not allowed to take a salary. With an S corporation, you’re required to take a reasonable salary. So with an S corporation, you’re gonna take a reasonable salary for the work that you’re doing as a payroll.

That’s gonna be a payroll type item. And then anything over and above that salary you’re gonna take as an owner’s draw or a distribution. And of course, if you’re a C corp, you’re gonna take dividends and payroll or salary. 

Documenting Payments

So I wanna talk about how do we document these payments? And the biggest thing is if we’re talking about draws or guaranteed payments, draws specifically, you’re gonna transfer money from the business bank account to your personal bank account.

It’s a balance sheet item. It doesn’t reduce income, it’s gonna reduce cash and it’s gonna increase the draw amount in the equity section of your balance sheet. [00:07:00] It’s very simple. Transfer money from your business bank account to your personal bank account, market it as a draw on your bookkeeping, doesn’t reduce income.

But it is a balance sheet item. Now, payroll that will reduce income, you’re gonna want to use a payroll software. Our recommendation for payroll software is Gusto because there’s a lot of calculations there for taxes, FICA tax filings, Gusto will take care of all of those filings and withholdings for you so you don’t have to worry about it.

So with payroll, we recommend using a payroll software, and that is gonna be a business expense when that comes through. To your, financial statements that it will show up on the income statement. Now, all of this needs to be done by 1231, so if you’re looking for draws or looking for payroll here in this year, in, in this specific year, all that needs to be done by 1231.

Example Scenario: Understanding Profit and Bank Balance

Now, let’s go through an example because I think this helped drives things help, and this is something we hear all the time where someone will say, Mike, my accountant says I’m showing profit, but there’s no money. In my bank account. How does that work? So let’s go through the facts, ’cause I want to help illustrate what this looks like.

Let’s say that you have business [00:08:00] revenue or sales of $200,000. And let’s say that you have expenses of $80,000. Now, let’s say then you also have payroll expenses, including payments as corporal owners of $50,000. And you take an owner’s draw of 40,000, let’s go through that again. Business sales of 200, business expenses of 80.

Payroll, including the owner of 50 and owner draws of 40. In that example, what’s your business profit? It’s gonna be your business sales of 200 minus your business expenses of 80 minus your payroll expenses of 50. Remember, owner draw does not reduce profit. So your profit in that example is $70,000. Now let’s look at the bank balance.

This would assume that there’s, no other activity, in your bank balance, start at zero, whatever. So use this as an example, but your bank balance is gonna be sales. Minus expenses, minus payroll, minus draw, and that’s what’s gonna be in your bank. And in that example, we get $30,000, 200 minus 80, minus 50 minus 40.

So you’re showing a profit of 70,000, but your bank balance is [00:09:00] only showing $30,000. Why is this? It’s because draw. Do not reduce profit, but obviously when you take money out as a draw, it’s reducing your bank balance. And so the draws are a balance sheet item, and that’s something that we always wanna understand.

So if you are ever in that situation, look at your draws, what does that mean? And that’s why. You’re, you are showing a profit, even though there might not be money in your bank account, it’s because you took draws. Now there’s some other reasons. Maybe it’s loan payments or credit card payments and principal pieces.

Don’t count towards that. But generally stating, oftentimes, especially in this example, it’s the owner draw piece. So just keep that in mind. 

Next Steps and Best Practices

So what are the next steps? Determine the way that you’re gonna pay yourself based on your entity type. If you’re a sole proprietorship, single member LC, you’re paying yourself as an owner’s.

Draw. If you’re a partnership, you’re paying yourself as an owner’s draw or guaranteed payments. If your set as an S corporation, you’re gonna take a reasonable salary, you need to pay yourself W2 payroll, reasonable salary, and you’re gonna take owner draws over and above that amount. If you are set up as a single member, LC.

No as corp election or [00:10:00] partnership, no. As corp election, you are not legally allowed as the owner of the business to take W2 payroll to yourself. So just keep that in mind. That’s where the owner draws comes up. Next is set up a system, especially if payroll’s acquired. You’re gonna wanna set up a system that you are running on a regular basis to make sure that you’re doing everything properly.

You’re taking that tax filings correctly. And even set up a system if you’re taking draws, when are you gonna take those draws? Is it a monthly thing? Just whenever you want. Just set up something that you know and have a cadence. To when you’re doing it and finally run estimated tax payments that you can take that into consideration throughout the year.

Remember, as a business owner, we’re responsible now for paying our taxes, so run some calculations to see what you estimate your tax payments to be so you can set some money aside for when tax season comes. 

Most LLC owners pay themselves the wrong way. Learn how to pay yourself as an LLC owner in 2026 and avoid common IRS red flags.

So there you have it. You know how to pay yourself correctly from your LLC in 2026. You know how to avoid the common tax traps and keep your finances smart.

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