Once your LLC is set up and money starts coming in, the next question hits fast: how do you actually pay yourself as an LLC in Texas?
It sounds simple, but there’s a lot of noise out there.
Should you take an owner’s draw? Run payroll? What if you’ve heard about something called an S Corp and now you’re wondering if you’re doing it wrong?
If you’re making money and want to make sure you’re handling it the right way, especially when it comes to taxes, this is for you.
We’ll walk through how to pay yourself from a regular LLC, when it might make sense to switch to an S Corp, and how to know if the tax savings are actually worth it.
Let’s start here, because it affects everything else.
If you didn’t file any special paperwork with the IRS, your LLC is taxed by default. That means the IRS treats you like a sole proprietor if it’s just you, or a partnership if you have other owners.
If you did elect to be taxed as an S Corporation, that’s a different setup, and we’ll get to it in a minute.
So ask yourself: did you file anything with the IRS to be taxed as an S Corp? If not, you’re in the default group.
This is the most common setup for new business owners, and it’s also the simplest. You’re not an employee of the business. You’re just the owner. That means no paycheck, no payroll system, and no tax withholding.
You pay yourself by taking what’s called an owner’s draw. You transfer money from your business account to your personal account. That’s it. There’s no formal process, and you don’t have to run payroll software.
Let’s say your business made $8000 in profit this month. You want to take home $4000. So you transfer $4000 to your personal checking account. Done.
Just remember: even though you’re not running payroll, the IRS still expects you to pay self-employment tax and income tax. That’s why it’s smart to set aside around 25 to 30% of your net income in a separate tax savings account.
That money is not all yours to spend, even if it’s sitting in your account.
It depends on your business. Some owners take a fixed amount each month, like a paycheck. Others take a percentage of profits. Both work.
What you don’t want to do is wing it. Paying yourself whatever’s left over in the account at the end of the month is a fast track to a tax mess. Build in a little structure, even if it’s simple.
Here’s an example. If your business nets $6000 per month, maybe you pay yourself $3000, set aside $1800 for taxes, and keep $1200 in the business for upcoming expenses.
There’s no perfect formula. But a consistent, intentional approach is always better than grabbing money randomly.
Now we’re in a different world. With an S Corp, you’re no longer just the owner. You’re also considered an employee of your business. That means you have to run payroll and pay yourself a reasonable salary.
Yes, real payroll.
You withhold taxes like Social Security and Medicare, and you file payroll reports. It’s more paperwork, and it usually means paying for a payroll service.
So why would anyone bother? Because of tax savings.
Here’s the big picture: when you’re taxed as an S Corp, only your salary is subject to self-employment taxes. Any profits above that amount can be taken as distributions, which are not hit with that extra 15.3% tax. That’s where the savings come in.
Let’s say your business makes $100,000 in profit. If you pay yourself a salary of $50,000 and take the rest as a distribution, only that first $50,000 is subject to self-employment tax. The other $50,000 avoids it.
But the IRS expects that salary to be reasonable. You can’t just pay yourself 10 bucks and take the rest as a distribution. There has to be a balance.
This is the part where a lot of business owners start guessing. Some switch too soon and get buried in paperwork. Others wait too long and leave thousands on the table.
That’s why we built the S Corp Tax Savings Calculator. You plug in your numbers, and it tells you whether an S Corp election would actually save you money, and how much.
You can try it now, it’s super easy to use:
If the savings are big enough, we can walk you through the next steps and help you set it up the right way.
If you’re a regular LLC, pay yourself through owner’s draws and set aside money for taxes. Keep it simple and keep your books clean.
If your profits are growing, use the calculator to see if an S Corp would save you money. If it does, we’ll help you make the switch without the stress.
Either way, paying yourself the right way doesn’t have to be complicated. You just need to know what to look out for and have a system that makes sense for your business.
And if you’re still unsure, we’re always here to help.
Simply use the calendar over here on our contact page to get in touch with our team. We’re accountants you’ll enjoy talking to, we promise.
Until next time!
