How to Pay Yourself as a Business Owner

Sole prop and single-member LLC — owner draw

There is no payroll. You move money from the business account to your personal account whenever you need it. Every dollar of net profit is taxed (income tax plus 15.3% SE tax) whether you withdraw it or not.

Multi-member LLC and partnership — guaranteed payments + distributions

• Guaranteed payments are owner compensation, deducted by the partnership
• Distributions are profit splits per the operating agreement
• Both flow through to the partner's personal return

S-Corp — reasonable W-2 salary + distributions

Owner-employees must run payroll and take a reasonable W-2 salary before pulling profit as a distribution. The salary is subject to payroll tax; the distribution is not. The IRS audits this — too-low salaries get recharacterized.

• Benchmark salary against what you'd pay someone else for the role
• Document the basis: industry comps, hours, responsibilities
• File 941s quarterly and W-2 in January

How much to pay yourself

• Owner pay first — set a baseline you can live on every month
• Reserve 25–35% of net profit for taxes in a separate account
• Keep 1–3 months of operating cash in the business
• Take additional distributions quarterly from what remains

Common mistakes

• Treating draws as expenses (they aren't deductible)
• Skipping payroll on an S-Corp and only taking distributions
• Forgetting to set aside taxes from each draw
• Co-mingling personal and business spending