Quick Answer

If your LLC is taxed as a default disregarded entity (or partnership), you pay yourself by taking an Owner's Draw: you simply transfer money from the business bank account to your personal bank account. If your LLC has elected S-Corp status, you must pay yourself a W-2 Salary through a formal payroll system.

Key Points for 2026

  • Single-Member LLCs: Use Owner's Draws. The draw itself is not a taxable event; you are taxed on total business profit.
  • Multi-Member LLCs: Use Guaranteed Payments or distributions based on ownership percentage, as defined in your Operating Agreement.
  • S-Corps: Must run payroll and withhold taxes (Federal, State, FICA) from the owner's paycheck.
  • No Commingling: Never pay for personal expenses directly out of the business account.

The Two Ways to Pay Yourself

1. The Owner's Draw (For Default LLCs)

For a standard single-member LLC, the IRS views you and the business as the same tax entity. Therefore, moving money from the business to your personal account is not a taxable event. You do not run payroll. You do not withhold taxes from the draw.

How to do it: Write a check from the business to yourself, or use an online bank transfer (ACH/Zelle). In your bookkeeping software, categorize this transaction as an "Owner's Draw" or "Owner's Equity" account. It is not a business expense.

2. W-2 Salary (For S-Corps)

If you filed Form 2553 to be taxed as an S-Corp, you are now considered an employee of your own business. The IRS requires you to pay yourself a "reasonable salary."

How to do it: You must set up a payroll service (like Gusto or QuickBooks Payroll). The software will calculate your gross pay, withhold income tax, Social Security, and Medicare, and deposit the net amount into your personal account. You will receive a W-2 at the end of the year.

Common Mistake: The Phantom Tax

Many new LLC owners think they only pay taxes on the money they actually draw out of the business. This is false. If your LLC makes $100,000 in profit, you are taxed on $100,000—even if you leave all $100,000 in the business bank account and take a $0 draw.

Example Scenario

The Situation: David is a freelance web developer with a single-member LLC. He made $5,000 this month. He needs $3,000 to pay his personal rent and groceries.

The Mistake: David uses his LLC debit card to buy groceries and pay his landlord directly.

The Correct Way: David logs into his business bank account and transfers $3,000 to his personal checking account. In his bookkeeping, he labels this a "$3,000 Owner's Draw." He leaves the remaining $2,000 in the business account for future software expenses and estimated taxes. He then uses his personal debit card to buy groceries.

What to Do Next

  1. Open a Business Bank Account: If you haven't already, you must separate your finances.
  2. Set Aside Taxes: Because an owner's draw does not withhold taxes, you must manually save roughly 25-30% of your net income for quarterly estimated tax payments.
  3. Document Everything: Keep your bookkeeping software up to date so your CPA can easily distinguish between business expenses and owner's draws at year-end.

Official Sources