How much should you pay yourself from an LLC?
This is the question we get more than any other, and most answers online are useless because they start with a percentage. The honest version starts with your entity, because an LLC does not have one answer. It has two, and which one applies to you depends on how the LLC is taxed.
First, how is your LLC taxed?
An LLC is a legal structure, not a tax structure. The IRS taxes it as one of three things, and owner pay works differently in each.
Single-member LLC
Taxed as a sole proprietorship by default. You do not take a paycheck. You take owner draws, and you pay self-employment tax on the profit whether you took the money out or not.
Multi-member LLC
Taxed as a partnership by default. Same idea, distributions rather than payroll, and each partner is taxed on their share of profit regardless of what was actually distributed.
LLC taxed as an S corp
Different rules entirely. You must pay yourself reasonable compensation through actual payroll, with withholding, and you can take remaining profit as distributions.
That distinction matters more than any percentage, because in the first two cases nobody is stopping you from taking whatever you want, and in the third the IRS has an opinion about it.
The number most owners actually need
Here is the uncomfortable part. Profit is not the same as cash you can take, and the bank balance is not either. Between them sit three obligations that are already spoken for: the tax on the profit, the money the business needs to keep operating, and anything you owe.
The method we use with clients is to work backward from percentages rather than forward from the balance. Every deposit gets split the moment it lands. A slice for profit, a slice for your pay, a slice for taxes, and the rest for operating expenses. What is in the owner pay account is what you can pay yourself. Not what is in the business checking account.
The specific percentages depend on your revenue and your margins, and anyone who gives you a universal number without seeing your books is guessing. What is universal is the sequencing: the set-aside happens first, on the way in, not from whatever is left at the end of the month.
The trap with taking too little
Underpaying yourself feels responsible and usually is not. Two things go wrong. You end up funding your own life from personal savings or credit while the business hoards cash it does not need, which makes the business look healthier than the household. And if the LLC is taxed as an S corp, paying yourself an artificially low salary to dodge payroll tax is the exact thing the IRS examines. Reasonable compensation is a real standard, not a formality.
The trap with taking too much
The other direction is more common. Draws taken against a bank balance that included money already owed to the state in sales tax, or payroll taxes not yet remitted, or a deposit for work not yet performed. The money was never yours. It was sitting in your account on its way somewhere else.
This is why the answer is never a number off a balance. It is a number off books that separate what is yours from what is passing through.
What to do this week
Find out how your LLC is actually taxed, because a surprising number of owners are not sure. Then separate the accounts so taxes and owner pay leave the operating balance the day money arrives. Then set the draw or the salary from the owner pay account only.
If your books do not currently distinguish draws from contributions from loans, that has to be fixed first, because until it is, the equity section cannot tell you what you have actually taken. We wrote about that in owner draws vs contributions vs loans. If the books are far enough behind that this is guesswork, that is a cleanup.
Brooks is a Certified Profit First Professional, and the cash system is built into every plan we run, not sold separately.
Answers before you ask.
How much should I pay myself from my LLC?
There is no universal percentage, and the honest answer depends first on how your LLC is taxed. A single-member LLC takes owner draws and pays self-employment tax on profit whether or not the money was withdrawn. An LLC taxed as an S corp must run reasonable compensation through actual payroll before taking distributions. The number itself should come from an owner pay account funded by percentage the day revenue arrives, not from whatever the business checking balance happens to be.
Can I just take money out of my LLC whenever I want?
Legally, in a single-member or multi-member LLC, largely yes. Practically it is how owners get into trouble, because the bank balance usually contains sales tax collected, payroll taxes not yet remitted, or deposits for work not yet done. That money was never yours. Draws should come from a balance that has already had those obligations removed.
What is reasonable compensation for an S corp owner?
It is what someone would have to be paid to do your job at arm's length, given your role, hours, industry, and the revenue you produce. Setting an artificially low salary to reduce payroll tax is a known examination trigger. This is a judgment call worth making with a CPA rather than a formula off the internet.
Do I pay tax on money I leave in the business?
In a default-taxed LLC, yes. Single-member and multi-member LLCs are pass-through, so you are taxed on your share of the profit whether you distributed it or not. This is the surprise that catches owners who left money in the business assuming it was untaxed until withdrawn.
Why does my accountant say my profit is higher than my bank account?
Usually timing and obligations. Profit is what the business earned in a period. The bank balance is what is sitting there right now, which may include money owed to others and exclude money already spent on inventory or debt principal. When the books are reconciled monthly, the gap between the two stops being a mystery.
Ready when you are
Want your own numbers instead of the general answer?
The In-Depth Diagnostic Review goes inside your actual QuickBooks and puts it in writing, with a recorded walkthrough. $497, credited toward your first month, report back in about a week.