How Do You Pay Yourself in an LLC?

by Finance Published on: 01 August 2018 Last Updated on: 16 July 2024


The initials LLC basically stands for Limited Liability Company. There are so many reasons that can motivate you to form an LLC. Some of them are personal while others are business related.

As far as business operations go, LLC formation will provide you with limited protection for liabilities. This means that your creditors can take away your home, personal bank accounts, cars, and other assets in order to settle your business debts. There is no better way to protect your assets just in case your business os sued other than LLC formation.

However, you are not into a non-profit business. You still have to earn a living.

How to Pay Yourself in an LLC?

There are two major ways of earning your keep in an LLC formation.

First is if you receive a salary commensurate to the position and the work that you put in. In this case, you are essentially an employee of the company even if you still retain ownership. If other LLC members are also working in the company, they will earn their salaries, too. This means that you will be treating yourselves like any other workers in the LLC even if you are the owners.

But of course, it’s not good business to pay yourself an insane amount of money because the profits will suffer. Besides, this is contrary to the rules of the IRS, which sets a certain amount for deduction.

The second way is to not work as an employee but instead get a certain amount out of the profits each year depending on the percentage of your shares or your capital account. In this case, you are mainly an investor. It is one of the main approaches as long as you have other sources of income. However, it only works for individuals who have broken even financially.

A variation of this is to set up monthly payments out of the expected profits the company will earn at the end of the year. This is the ideal arrangement if you want a monthly source of income. The only problem, however, is if the company doesn’t meet its target for the year. You need to be seen as you make such a plan lest you drain the LLC of all its profits.

If you are going to incorporate, you need to apply for EIN online so you can file your tax returns, open a business account, or pay for tax on workers payroll. You can do this on your own but can do this on your behalf and free up your time for more important things. The beauty of going for professionals is that they understand the documentation process. They also have great connections that will make sure that the LLC is registered within the shortest period. Don’t waste time and concentrate on more important business matters as professionals work for you. You will also discover that you will save a lot of money in the long run.

Conclusion :

Forming an LLC is the best approach for any entrepreneur who wants to protect his or her assets. You can either earn a monthly salary like the other employees or pay yourself from the profits that the company makes. Its advisable to use professionals to register the LLC so as to make the whole process efficient.

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Mashum Mollah is the feature writer of Search Engine Magazine and an SEO Analyst at Real Wealth Business. Over the last 3 years, He has successfully developed and implemented online marketing, SEO, and conversion campaigns for 50+ businesses of all sizes. He is the co-founder of Social Media Magazine.

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