OK so I finally formed a single-member LLC for my freelance work (design/marketing). Now I'm confused about paying myself. Do I take a salary or just draw money whenever? I've read conflicting stuff. Some say salary is mandatory, others say draws are fine for LLC. I'm the only member, no employees. Help a confused newbie out.
LLC pay
Salary or owner draws: how do you pay yourself from a single-member LLC?
Single-member LLC = disregarded entity by default. You don't take a salary. You take owner draws. Salary is for S-corp or C-corp. Unless you elect S-corp, just draw.
This. But keep in mind: draws aren't a tax deduction. You pay income tax on akl net profit regardless of what you draw. So don't think drawing less saves you taxes.
Dear god, not this again. Salary vs draws. For a single-member LLC, you are self-employed. You pay SE tax on net profit. No salary needed. But if you want to save on SE tax, look into S-corp election. That's when you take a reasonable salary. But that's more paperwork. I need coffee.
So if I just draw, do I need to do it formally? Like write myself a check or transfer? Or can I just use the business account for personal stuff?
Don't use the business account for personal stuff. That's how you lose liability protection. Keep separate. Transfer to personal as a draw and record it.
Lol 'reasonable salary' is the most vague thing ever. IRS doesn't define it. Good luck.
As vague as my chances of ever understanding tax code. But seriously, if you're small, just do draws. Don't overcomplicate.
Also, you need to make sure you have enough money set aside for taxes. Since you're not doing withholdings, you might need to pay estimated taxes quarterly. That's the bigger issue than salary vs draws.
Yeah, estimated taxes arre a pain. But if you're just starting, you might be safe harbor if you paid last year's tax. Talk to a CPA though.
Thanks all. So the consensus is: no salary, just draws, keep records, pay estimated taxes. And maybe consider S-corp later if profits grow. That about right?
yes. And for the love of all that is holy, don't commingle funds. Get a separate business bank account if you haven't. That's more important than salary vs draws.
Also, check your state. Some states have annual fees or franchise taxes. That can sneak up on you.
And don't forget to actually pay yourself enough to live. I know too many people who reinvest everything and then panic when they need cash. Draws are flexible, use them.