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Blog

3 Ways LLC Owners Can Pay Themselves

ADMIN

June 15, 2022

Being the owner of an LLC is an amazing accomplishment that entitles you to all sorts of rewards. Paying yourself should be the very first one. But how do limited liability company owners pay themselves? Well, there is more than one option, and the one you choose will largely depend on your personal preference.

Continue below to learn the 3 ways you can pay yourself as an LLC business owner, plus where to get seasoned small business tax planning advice and assistance in Indiana.

How to Pay Yourself in a Limited Liability Company (LLC)

Choosing to establish your business as a limited liability company (LLC), whether single-member or other, is a smart way to consolidate your business and protect yourself from associated liability. When it comes to paying yourself, you have three options: pay yourself as a wage earner, pay yourself as an independent contractor, or pay yourself as an LLC member to receive certain allocation from company profits. Here is a brief explanation option for each option:

Wage Earner

Limited liability company owners have the option of paying themselves as a regular wage earner. Under this option, you would pay yourself as a regular employee of the LLC, which means you would receive regular take-home pay throughout the year. This option is best for those who prefer a steady income. If you choose this option, be sure you are actually working at the company on a regular basis under an actual role; otherwise, you could be subjected to audit.

Independent Contractor

As an LLC owner, you also have the option of paying yourself as an independent contractor. Essentially, you would hire yourself as an independent contractor to do the work of a limited liability company owner. Under this option, you would be required to file an IRS Form W-9 with the LLC and file an IRS Form 1099-MISC as the LLC. You will also have to pay employment taxes on yourself.

LLC Member

By establishing yourself as an LLC member, you can set yourself up to receive distributions from the company’s profits at the end of each year. Because this payouts in one lump payment at the end of each year, LLC owners who choose this option tend to have other sources of income coming in throughout the year. However, you can also set this up to receive periodic payments through the year that draw from the end-of-the-year profits.

If you are a single member LLC, you would receive 100% of the company’s profits at the end of the year. If there are other members of the LLC, they would receive payment based on their capital account, or percentage of ownership. For instance, if your company makes $200,000 in profits and each person owns 50% of the LLC, you would each receive $100,000 at the end of the year.

As a single member LLC, you will be expected to pay income tax on your distributions. You will also be expected to file a schedule C form with your personal tax return, which reports the company’s profits and losses for the year. If you are not a single member limited liability company, your LLC will file an IRS Form 1065, which reveals how company profits are divided.

There’s a 4 Option: Do Not Take an Income! But you will still need to pay income taxes on any company profits earned!

Are you looking for help with LLC tax planning and preparation? Contact Aspire CPAs, PC at 317-469-4500 to speak with a licensed accountant who specializes in business tax planning and preparation in Indianapolis, Indiana. You may also request an appointment, online.

Related Posts:

Tax Planning Tips for Startup Business Owners
Common Tax Deductions for Small Businesses
Fundamental Facts About Business Tax

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