How Do I Pay Myself and My Taxes as a Single-Member LLC?

The LLC (limited liability company) is a popular alternative to a sole proprietorship set-up for single-owner businesses. It gives you the same simplified income processing that a sole proprietorship enjoys, plus financial and legal protection similar to a corporation’s.

Here’s how the owner’s salary and taxes are handled for a single-member LLC.

Paying Yourself: The Owner’s Draw

If you were the owner of an S-Corporation, you would have to pay yourself a salary as if you were any other W-2 employee. Thus you would need to create a separate bank account; use a payroll system; and withhold, report, and submit payroll taxes. A lot of hassle for just one person, right?

An LLC, on the other hand, can be treated the same as a sole proprietorship — as long as you choose to be taxed that way, not as a corporation. That means you can take money out of the company’s profits whenever you need it, in what’s called the owner’s draw, simply by writing yourself a check.

For bookkeeping purposes (if you’re doing your own books), create a “drawing account” on your balance sheet. Whenever you take money out of the company, enter it as a debit in the drawing account, then enter the same amount as a credit in your personal account.

Paying Income Tax

The IRS classifies a single-member LLC as a “disregarded entity,” with basically the same rules as a sole proprietorship. That means you won’t have to file separate tax returns for your business and personal income.

Instead, the business profits and losses are “passed through” to your personal account, and will be reported on your personal federal tax return — IRS Form 1040, generally with Schedule C, E, or F.

The one drawback to this situation is that you will have to pay the full amount of payroll taxes (Social Security and Medicare) all by yourself. If your business were a corporation, you’d split the cost half-and-half with your “employer.”

The rules for paying state income tax vary, so be sure to check how your state treats the LLC as a taxable entity.

Still not sure about the ins and outs of bookkeeping, paying yourself or preparing your tax return as a single-member LLC? Our small business experts can clear things up, answer your questions, and help you decide what’s best for you and your business. At Xendoo, our mission is to take those hassles off your shoulders, so you can concentrate on making your business thrive.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

3 replies
  1. Juan
    Juan says:

    As sole proprietor of an LLC, how do I prepare a payroll sheet, which is being requested to apply for the “PLO” federal loan program? I started last year and haven’t filed my taxes for 2019. I do not have payroll in place
    Please help.

    Thank you.

    Reply
  2. Mike Burk
    Mike Burk says:

    I have a single member LLC. For 2019 I took a total of $21,000 in draws that do not show up on the P&L statement and only on the balance sheet. However, on the P&L statement I have a business loss of $5,200. On the schedule C do I need to account for the $21,000 draws and pay taxes on them?

    Reply

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