A single-member LLC owner takes an owner's draw, not a paycheck. What a draw is, why it isn't deductible, how the tax is really calculated, and the records that keep the LLC's liability shield intact.
New single-member LLC owners ask some version of the same question in their first month: "How do I pay myself, and what do I withhold?" The answer surprises most of them. You do not put yourself on payroll, you do not issue yourself a W-2 and nothing is withheld. You take an owner's draw, and the tax is settled on your personal return. This post explains how that works and what it changes about your bookkeeping. For how the LLC itself is taxed, start with our single-member LLC tax guide.
For federal tax, a single-member LLC that has not elected otherwise is a disregarded entity. The IRS treats you and the LLC as the same taxpayer: its profit is your profit, reported on Schedule C with your Form 1040. Because you and the business are one taxpayer, you cannot be your own employee. Wages paid to yourself are not wages at all; they are money moving from one of your pockets to another.
That is the whole concept of an owner's draw. You transfer money from the business account to your personal account whenever you choose. The transfer is not an expense of the business and does not reduce its profit.
This is the part that trips people up: you are taxed on the LLC's profit, not on what you drew. If the business earns $120,000 after expenses and you only moved $60,000 to your personal account, you still owe tax on $120,000. Leaving money in the business account does not defer anything.
On that profit you owe two things:
Nothing is withheld, so you pay as you go through quarterly estimates due April 15, June 15, September 15 and January 15. Aim for a safe harbor of 90% of this year's tax or 100% of last year's (110% if last year's AGI topped $150,000) and the underpayment penalty disappears. Our estimated taxes guide has the worksheet.
On the first point, see why commingling business and personal money is costly; the tax side is only half the problem.
Everything above changes if the LLC elects to be taxed as an S corporation. Then you become an employee of your own company, must pay yourself a reasonable salary through payroll with real withholding, and can take remaining profit as distributions that avoid the 15.3% SE tax. The saving is roughly 15.3% of the gap between profit and salary, minus payroll costs, a separate Form 1120-S and tighter bookkeeping. It tends to pay once profit is comfortably above what a reasonable salary would be. The S corp reasonable salary guide and our one-person S corp payroll guide cover the mechanics; the LLC vs S corp vs C corp comparison helps you decide.
One more way to move business profit into your own name with a deduction attached: a solo 401(k) or SEP IRA. Contributions reduce taxable profit while the money stays yours. For most single-member LLC owners this is the largest controllable deduction on the return; compare the two in solo 401(k) vs SEP IRA.
A single-member LLC owner is paid by owner's draw: transfer what you need, keep the records clean, and settle income and self-employment tax on the full profit through quarterly estimates. When profit grows past a reasonable salary, run the S corp numbers. If you want those numbers for your own business, our business tax team runs the comparison as part of planning.
Talk it through with a licensed US tax professional — we'll tell you honestly whether it applies to your situation.
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A single-member LLC is a disregarded entity: all profit flows to Schedule C and gets hit with 15.3% self-employment tax. Here's how it works and when an S election starts paying.
