How Much Should I Pay Myself From My LLC? What to Consider

As an LLC owner, your paychecks will depend on your business’s financial situation and tax structure, plus your personal financial needs. There’s no single “right amount” to pay yourself each month.

This makes things a little difficult. Many new business owners struggle to determine how much they can take home without interfering with their business’s financial goals. 

In this article, we’ll cover how much you should pay yourself from your LLC so you can balance work finances and personal needs.

How Does Your LLC Structure Affect How You Pay Yourself?

Your LLC structure determines how to pay yourself and affects your taxes. Here are the four types of LLCs and how they impact owner payments:

Your LLC type affects how both you and your business pay taxes, but it isn’t the only determining factor. You can also make tax elections that change how the federal and state government treats your tax liability. 

How Often Should You Pay Yourself from an LLC?

Your payment schedule is partially determined by the type of LLC you have. 

If you have a single-member or multi-member LLC, you’ll get to choose when to make owner draws from your business. To keep your budget and your cash flow consistent, consider withdrawing money at regular intervals, rather than withdrawing at random times. Keep in mind that if you have a multi-member LLC, both owners are also entitled to guaranteed payments regardless of profitability. 

If your LLC is taxed as an S-corp or C-corp, you’ll need to be on your business’s payroll. In this case, you should follow the appropriate payroll requirements for your business structure. You can also make non-wage profit distributions or pay dividends after you’ve met your payroll obligations. 

Consider consulting with a qualified tax professional for detailed tax information. 

How Much Should You Pay Yourself from Your LLC?

There isn’t one universal percentage you should pay yourself from your business. But you can calculate the right payment amount for your situation by assessing your operations, tax liability, and personal needs.

Start With Your Business’s Profit and Cash Flow

First, you’ll need to determine how much money you have available to work with. Consider your profits, then look into your regular cash flow. 

Business income and expenses can fluctuate based on seasonal demand and market conditions. Avoid basing your calculations on one strong month, as you may not always be able to replicate it. Instead, look at your average profit and cash flow patterns over several months and use that as the basis for your calculations.

Account for Taxes and Business Expenses

Next, calculate how much you’ll need to reserve for business expenses and taxes each month. This money should be set aside before you take your personal compensation. 

Most businesses need to make quarterly estimated tax payments, so you’ll need to set aside a percentage of your profit to cover them. The exact percentage will depend on your tax rate and the deductions you qualify for. 

You’ll also need to set aside money for business expenses. This includes recurring operating expenses, anticipated one-time purchases, and any debt obligations you have. Keep in mind that new business expenses can pop up unexpectedly, so give yourself enough of a financial buffer to handle any surprises. 

Consider How Much The Business Needs to Retain

Now, leave some extra funds to keep your business running smoothly. These funds can serve as emergency reserves or cover upcoming growth investments like equipment, real estate, or new hires. 

When calculating this amount, you’ll need to find the right balance between personal stability and business success. If you leave too much in your business reserves, it could negatively affect your personal finances. However, if you withdraw too much for your own salary, it could hamper your business’s growth. It may take a little experimentation to find the perfect number.

Determine Your Personal Income Needs

Finally, you can decide how much to pay yourself based on the amount of profit left over. Instead of focusing on a specific percentage a business owner should pay themselves, base compensation on how much is available and what you need to live comfortably. This customizes the number to your situation so your professional and personal expenses don’t suffer.

Find your ideal amount by assessing your personal income needs: Add up expenses like housing, food, and utilities, then add a buffer for discretionary spending and savings. This is a realistic baseline for your personal income, which you can adjust over time based on your needs. 

Research Comparable Compensation When Applicable

If your LLC is taxed as an S-corp, the IRS requires you to provide reasonable compensation for yourself and other shareholder-employees. Failing to do so could have tax implications for your business. 

Reasonable compensation is based on factors like your experience level, work responsibilities, and the amount of time you spend on the business. Take a look at what similar businesses pay their owners to benchmark your calculations. 

How To Calculate Self Pay from an LLC

Here’s a breakdown of how to pay yourself in an LLC, step by step: 

• Calculate your business’s average monthly revenue based on recent operating data

• Subtract recurring operating expenses and debt obligations

• Set aside funds for taxes and upcoming one-time expenses 

• Set aside reserve funds for unexpected emergencies or growth opportunities

• Compare the remaining amount with your personal income needs to calculate your draws accordingly

• If your tax structure requires you to be on payroll, research reasonable compensation for similar business types and use that to guide your salary

These steps give you an approximate baseline, but you can adjust it based on your situation. Your business’s finances will likely change over time, so it’s worth re-evaluating your compensation at least once a year. 

Small Business Owner Salary Calculator

Use this calculator to estimate how much your business can afford to spend on owner compensation. Note that this is just an estimate to get you started, and you’ll need to adjust the results to the specifics of your business. 

Simplify Small Business Owner Compensation With Justworks

Deciding how much to pay yourself is tricky, especially in the early stages of running a small business, but there’s a straightforward structure to it. By assessing your cash flow, tax liability, and personal needs, you can find a compensation amount that works for both you and your business.

If you’re looking for a simple way to manage your finances, give Justworks a try. Justworks Payroll simplifies your payroll process to keep you organized and support compliance with local labor laws. Our platform helps you calculate earnings, process payments, and prepare for employee and employer payroll taxes. Justworks’ business owner payroll tools let you offer benefits and dole out pay stress-free, with expert HR help when you need it.

For owners who need broad support, consider Justworks PEO. You maintain operational control, and Justworks handles taxes, payroll, and compliance across your workforce.

Explore Justworks today to manage small business payroll without the headaches. 

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.

FAQ

Can I Pay Myself if My LLC Isn’t Profitable?

Yes, you can pay yourself even if your LLC isn’t currently profitable. Single-member LLCs can make owner draws at any time and multi-member LLC owners are entitled to guaranteed payments. Businesses that are taxed as an S-Corp or C-Corp are required to be on payroll and receive reasonable compensation, regardless of profit.

What Happens if I Take Too Much Money Out of My LLC?

If you take too much money out of your LLC, it could leave you unable to pay your business expenses or taxes later on. Calculate withdrawals carefully, and consider factors like business expenses, taxes, and emergencies.

Can I Pay Personal Expenses Directly From My LLC?

No, you should not pay personal expenses directly from your LLC, as this can complicate your business’s operations and tax liability. Instead, pay yourself from your LLC following an appropriate payment structure, then pay your expenses from your personal account.