Here’s how to do it right:
Step 1: Open a Business Bank Account
- All business income should go into your LLC’s bank account—NOT your personal account. Pay yourself from this account—never use business funds for personal expenses.
- Pay yourself from this account—never use business funds for personal expenses.
Step 2: Pay Yourself the Right Way
Single-Member LLC (Default Taxation)
- Take an owner’s draw by transferring money from your business account to your personal account.
- No payroll taxes on draws, but set aside 25-30% of your gross income for taxes (self-employment & income tax).
Multi-Member LLC
- Each member takes distributions based on the operating agreement.
- Taxes aren’t withheld automatically, so set aside 25-30% and plan for quarterly estimated tax payments.
LLC Taxed as an S-Corp
- Pay yourself a reasonable salary through payroll (W-2 income).
- Take additional profits as distributions (not subject to self-employment tax).
- Payroll taxes apply to your salary, but still set aside extra for taxes on distributions.
Step 3: DO NOT Commingle Funds
- DON’T pay personal expenses directly from your business account.
- DON’T deposit business income into your personal account.
- DO transfer your pay from the business account to your personal account to stay IRS-compliant.
Step 4: Save for Taxes Now!
- Set aside 25-30% of your gross income for taxes to avoid a big bill later.
- Use a separate savings account for tax money so it’s ready when you need it.
Contact Oak City Accounting for structuring your LLC pay and tax plan
At Oak City Accounting, we offer expert tax preparation, tax planning, and bookkeeping services to clients from a wide range of industries and backgrounds. Our CPAs and accounting teams are dedicated to identifying valuable deductions and credits, while also helping you develop personalized, long-term financial strategies for lasting success. Whether you're an individual or a business, we're here to guide you through every step of the process. For professional accounting services, please contact us at 919-268-8060 or complete the form below, and we’ll be in touch shortly.
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