Title basically says it. Filed the articles a couple weeks ago, got the EIN, now I'm staring at my bank account wondering what the "right" way to pay myself is. It's just me, no employees. I've heard distributions vs salary vs owner's draw thrown around but every article contradicts the next. Do I need to run payroll through a service or can I just transfer money when I need it? Also does it matter that I'm the only member? Any Nebraska-specific gotchas or is this just a federal thing?
LLC Pay
I formed a Nebraska LLC but haven't decided how to pay myself
Single-member LLC? Default tax treatment is disregarded entity, so you're basically a sole prop for federal taxes. No payroll needed unless you elect S-corp. Just take draws.
Seconding the above but adding: draws aren't "wages" so no FICA withholding, but you still owe self-employment tax on the net profit. A lot of people get surprised by that in April. Set aside 25-30% of what you pull out.
Yep. And @CaffeinatedOwl is right, the SE tax thing bites people. I'd also say don't commingle funds. Open a separate business checking even if it's just you. Makes bookkeeping way less of a nightmare.
S-corp election is the thing to look at once you're clearing decent profit. Salary + distributions can save on SE tax. But there's payroll cost and paperwork, so it's not worth it at low revenue. What's your ballpark net?
Probably $60-80k this year if things hold. Consulting stuff, low overhead.
At that range S-corp is worth running numbers on, honestly. But talk to a CPA before electing. Reasonable comp rules are fuzzy and the IRS does look at them.
lol at "every article contradicts the next." Welcome to small business. Half of them are written by people who've never run one.
Nebraska doesn't have a personal income tax issue specific to LLC draws beyond the the normal state return, but make sure you're handling the state withholding if you do go the payroll route later. Also the annual report with the Secretary of State is a separate thing, easy to forget.
This. I forgot my annual report one year and got a nice little late fee. Not huge but annoying.
Can someone explain the difference between a draw and a distribution? I've seen both used like they're the same thing and I'm confused.
For a single-member LLC they're basically the same in practice, just money you take out. "Distribution" is more the term for multi-membber LLCs or corporations. Don't overthink it.
Sort of. Technically a draw is an owner taking money, a distribution is a share of profit. But yeah, for on person filing as disregarded, functionally identical. The tax form doesn't care what you call it.
Ok so separate account, transfer when I need it, set aside for SE tax, consider S-corp later with a CPA. That's more clarity than three hours of googling gave me. The annual report thing I had no idea about.
Just don't pay yourself in cash from the register and call it a day. Seen that movie.