How to Legally Pay Yourself from an LLC or S Corp 2025

Paying yourself from an LLC or S Corp doesn’t have to be complicated. The key is understanding how draws, salaries, and distributions work under IRS rules. Set them up correctly, and you’ll stay compliant, keep your records accurate, and protect your business from unnecessary risks.

In this guide, you will find practical ways to pay yourself from an LLC or S Corp, the tax rules that apply, and the common mistakes to avoid.

So, let’s get started.

Key Takeaways:

In a standard LLC, take owner’s draws; partnerships can add guaranteed payments.
An S corporation (S corp) requires payroll first, with a reasonable salary before taking distributions.
Always keep business and personal money separate and clearly label every transfer.
2025 quick tax note: SE tax 15.3% on 92.35% of net earnings, Social Security to $176,100, 2.9% Medicare on all, plus 0.9% extra for high earners.
Set aside 25% to 35% for taxes and make quarterly estimates if you will owe over $1,000.

LLC vs S Corp: Quick Snapshot

Before diving into the details, let’s break down how paying yourself works under each structure so you can see the differences at a glance.

Structure	How you pay yourself	Employment taxes	Key IRS forms
Single-member LLC	Owner’s draw to personal account by cheque or bank transfer	Self-employment (SE) tax on profit	Schedule C, Schedule SE
Multi-member LLC	Distributions by share; optional guaranteed payments for active members	SE tax on distributive share for active members and on guaranteed payments	Form 1065, Schedule K-1, Schedule SE
LLC taxed as S corp	Salary via payroll first, then distributions	– Payroll tax on salary only – No SE tax on distributions	Form 1120-S, W-2, Forms 941 and 940, Schedule K-1
LLC taxed as C corp	Salary as an employee; dividends from after-tax profits	– Payroll tax on salary – Dividends are taxed again to the owner	Form 1120, W-2

Disclaimer: This information is for informational purposes only and does not constitute legal or tax advice. You should consult with an accountant or a financial advisor to understand what payment method is best for your specific situation.

Paying Yourself from an LLC

If you run your business through an LLC, how you pay yourself depends on whether you are the only owner or share it with others.

1. Single-member LLC (default sole proprietorship)

If you are the only member, the IRS treats your LLC as a disregarded entity. All profits flow to your personal tax return. You will not get a payslip like an employee. Instead, you pay yourself with an owner’s draw, taken by writing a cheque or making an online bank transfer.

How it works:

Money lands in your business bank account.
You move funds to your personal account when needed and label the transfer as Owner’s draw in your books.
At tax time, you report the full year’s profit on Schedule C (Form 1040), no matter how much you actually withdrew.

Taxes for 2025:

Base: Calculate SE tax on 92.35% of net earnings using Schedule SE.
Rate: 15.3% total, made up of 12.4% Social Security up to $176,100 and 2.9% Medicare on all earnings.
High earners: Extra 0.9% Medicare tax above $250,000 (MFJ), $200,000 (single/HOH/QSS), $125,000 (MFS).

Additional Info: If your LLC earns $80,000 of net profit, you will pay income tax and self-employment tax on the full $80,000, even if you only draw $50,000 during the year.

2. Multi-member LLC (partnership by default)

With more than one member, an LLC is taxed as a partnership by default. Each member has a capital account that tracks contributions, allocations, and distributions.

Members can take owner’s draws based on their share, and active members may also receive guaranteed payments for services. These guaranteed payments are fixed amounts paid regardless of profit and are deductible by the LLC.

Tax rules:

The LLC files Form 1065.
Each member receives a Schedule K-1 that reports their share of income, deductions, and credits.
Guaranteed payments are taxable to the recipient and deductible by the LLC.
Self-employment tax generally applies to guaranteed payments and to the distributive share of trade or business income for members who materially participate.
Limited partners and some passive members may not owe self-employment tax on their distributive share.

3. LLC taxed as a corporation

You can elect for your LLC to be taxed as an S corporation or a C corporation. This changes how you get paid and how employment taxes apply.

3.1) S corporation Election

If you actively work in the business, you must pay yourself a reasonable salary through payroll. You can then take additional profit as distributions. Only the salary is subject to payroll taxes, which is where potential savings arise.

Eligibility requirements for S corp taxation

To have your LLC taxed as an S corp, the IRS requires that you:

Are a domestic U.S. entity
Have 100 or fewer shareholders (or LLC members)
Have only one class of stock (or the LLC equivalent)
Have eligible shareholders only: individuals, certain estates, and certain trusts. Not allowed as shareholders are corporations, partnerships, and non-resident aliens

S corp rules for LLC owners:

You stay an LLC under state law, but the IRS taxes you as an S corp. Keep one class of ownership.
Do not use guaranteed payments. Pay yourself a salary for work and take distributions for profit.
Take distributions in line with your ownership share and track your basis. A low basis can make part of a distribution taxable.
If you own more than 2%, run your health insurance through payroll and show it on your W-2 to keep the deduction.
Check your state rules for unemployment and workers’ comp for members on payroll.
File Form 2553 for the election. After it is active, stop using owner’s draws and use shareholder distributions instead.

3.2) C corporation Election

You are paid a salary as an employee. The corporation may also pay dividends from after-tax profits. Dividends are not deductible by the corporation and are taxable to you, so overall, there can be double taxation.

Tax rules:

Pay corporate tax at 21% and file Form 1120.
Dividends to owners are taxed again on personal returns.
Owners who work in the business are employees and take a salary via payroll.

Who it suits:

Startups seeking venture capital.
Businesses that want to retain and reinvest earnings.
Teams planning share options and broader employee benefits.
Cases where the corporate rate may be lower than the owners’ personal rates.

How to elect:

File IRS Form 8832 to change classification.
From the effective date, file corporate returns on Form 1120.

Paying Yourself from an S Corporation

If you work in your S corp, pay yourself in two parts.

First, a reasonable salary through payroll. Then take any remaining profit as distributions. Salary is subject to Social Security and Medicare. Distributions are not. Keep the salary defensible for the IRS.

1. Salary vs distributions

Feature	Salary (W-2 wages)	Distributions (Schedule K-1)
Tax	Subject to Social Security and Medicare, plus income tax withholding	Not subject to Social Security or Medicare; still income taxable to you
IRS rule	Must be “reasonable” for your role	Only after you pay a reasonable salary
How you get paid	Run payroll and withhold taxes	Transfer funds from the business account to your personal account and record it
Forms	W-2 to you; S corp files Forms 941 and 940	S corp files Form 1120-S; you receive a Schedule K-1
Company impact	Salary is a deductible business expense	Distributions are not a payroll expense

2. Reasonable Salary Rule

Set pay that matches what someone in a similar role and location would earn, considering:

Duties and responsibilities
The time you spend in the business
Your experience and training
What comparable businesses pay
Company profitability

Keep evidence such as pay surveys, notes from advisers, or quotes from compensation tools. Avoid arbitrary splits like 60-40. If income is nil, a salary is not required for that period.

3. Distributions for Extra Income

After salary and expenses are covered, you can take profits as distributions. They are not subject to self-employment or payroll taxes, but they remain income taxable to you. Track each transfer and monitor stock basis and state rules.

Additional Info: If your S Corp earns $120,000, and you take a $70,000 salary plus $50,000 in distributions, only the $70,000 salary is subject to Social Security and Medicare taxes, while the $50,000 is taxed as income but not payroll taxes.

4. How to Process Your Payments

Get an EIN if you do not already have one.
Open and use state payroll accounts where required.
Choose a payroll method or provider and run payroll with proper withholdings.
Pay yourself distributions only after salary. Move funds to your personal account and record them clearly.
File on time: Forms 941 quarterly, 940 annually if applicable, issue a W-2, file Form 1120-S, and include your K-1 on your personal return.
Make estimated tax payments if needed.

Compliance matters

Do not underpay salary to chase bigger distributions. The IRS can reclassify distributions as wages and assess back payroll taxes, penalties, and interest.
Keep clean books that clearly separate salary and distributions.
Maintain documentation supporting how you set your pay.

Common Mistakes to Avoid When You Pay Yourself from an LLC or S Corp

When it comes to taking money out of your business, a few common slip-ups can undo all your hard work if you are not careful.

Paying yourself wages as a sole proprietor or partnership: The IRS does not allow owners in these structures to take a salary. You can only take owner’s draws or guaranteed payments, so trying to run payroll on yourself is a red flag.
Mixing business and personal expenses in the same account: This not only makes bookkeeping messy but can also pierce your liability protection. Always keep a separate business account.
Below-market S corp salary: Some owners think paying a very low salary means bigger tax savings, but the IRS sees this as unreasonable compensation and may audit you.
Forgetting quarterly estimated taxes: Even if you’re not on payroll, taxes don’t disappear. Missing quarterly tax deadlines can lead to penalties and interest.
Draining the business account completely: Taking out too much cash leaves your LLC or S Corp undercapitalised and unprepared for expenses or tax bills. Always leave a buffer.

Key Acronyms for LLCs and S Corps

LLC: Limited Liability Company
S Corp: S Corporation (pass-through tax entity under Subchapter S of the IRS Code)
C Corp: C Corporation (taxed separately at the corporate level)
IRS: Internal Revenue Service
SE Tax: Self-Employment Tax
W-2: Wage and Tax Statement (issued to employees for salary income)
K-1 (Schedule K-1): Form reporting each shareholder’s share of income, deductions, and credits from an S Corp or partnership
Form 1065: U.S. Return of Partnership Income
Form 1120 / 1120-S: Corporate tax return (C Corp / S Corp)
Forms 941 and 940: Employer’s Quarterly Federal Tax Return / Annual Federal Unemployment Tax Return
EIN: Employer Identification Number
MFJ / MFS / HOH / QSS (Filing statuses): Married Filing Jointly, Married Filing Separately, Head of Household, Qualifying Surviving Spouse

Using DSGPay to Simplify Your Business Payments

Once you have sorted out how to legally pay yourself from your LLC or S Corp, the next challenge is moving money across borders in a way that is clear, efficient, and compliant.

DSGPay simplifies the process with transparent multi-currency accounts and secure payment tools designed for businesses.

What you can do with DSGPay

Named virtual accounts: Create virtual accounts in your business name with local details like a virtual IBAN or local account and routing numbers so clients can pay you like a local.
Access 30+ currencies: Hold, send, and receive payments in major currencies including USD, EUR, HKD, AUD, KRW, and more.
Faster payouts to yourself: Pay yourself by transferring to your personal bank account in your home currency. Move money between accounts quickly, with clear references so your books stay accurate.
Lower FX costs: Cut FX costs with competitive exchange rates and lower transfer fees.
Organised records for tax time: Stay organised with downloadable statements that map neatly to salary, distributions, and owner’s draws.
Stay compliant: Get real-time tracking and records to support clean bookkeeping and regulatory requirements.

How virtual accounts fit your workflow

LLC, owner’s draw: Receive client funds into a USD virtual account, hold or convert into another currency if needed, then transfer to your personal account and record as owner’s draw.
S Corp, salary and distributions: Keep payroll in your main business account. Use DSGPay virtual accounts to collect revenue in multiple currencies, then sweep to the business bank for payroll and send separate transfers for shareholder distributions.

Final Thoughts

Paying yourself from an LLC or S Corp isn’t just about transferring money between accounts. It is about staying compliant, protecting your liability shield, and making smart use of tax rules.

If you own an LLC, you will typically pay yourself through draws or guaranteed payments.

If you run an S Corp, you must take a reasonable salary first and then can top it up with distributions. The key is to keep your books clean, set aside money for taxes, and consult a CPA before finalising your approach. Done properly, your business will reward you with steady income while keeping you on the right side of the law.

FAQs About Pay Yourself from an LLC or S Corp

Q: Is it better to pay yourself as an employee or through distributions?

If you’re taxed as an S Corp, the IRS requires you to pay yourself a reasonable salary first. Anything extra can be taken as distributions, which aren’t subject to self-employment tax.

Q: Can the owner of an LLC pay themselves through payroll?

Only if the LLC is taxed as an S Corp or C Corp. Sole proprietorships and partnerships cannot pay wages to members, only distributions or guaranteed payments.

Q: How do I pay myself from a single-member LLC?

The simplest method is an owner’s draw. You transfer money from the LLC bank account to your personal account, and it’s reported on your personal tax return.

Q: How do I pay myself from an LLC partnership?

Partners can take distributions based on their ownership share or receive guaranteed payments if they actively work in the business. Guaranteed payments are taxable even if the LLC isn’t profitable.

Q: What percentage should I pay myself from my LLC?

There’s no set percentage. Many owners use 30–60% of profits as a salary in an S Corp, and take the rest as distributions. For regular LLCs, it depends on cash flow and tax planning.

Q: What are the benefits of paying yourself through an LLC?

It keeps personal and business finances separate, protects your liability status, and gives flexibility to choose between draws, guaranteed payments, salaries, and distributions depending on your tax setup.

Q: Can I use DSGPay to pay myself from my LLC or S Corp?

Yes. DSGPay makes it easier to receive payments, hold funds in multiple currencies, and transfer money to your personal account as salary or distributions. It helps cut fees and keeps records clean for tax time.