How to Pay Yourself From Your LLC
Have you ever wondered how to pay yourself fairly in an LLC? If you own a business and are your own boss, you’ve most likely set up an LLC (Limited Liability Company). There’s a very specific way that you should delegate money to make sure that you’re preserving your assets and maintaining your legal protection. In other words, here’s how to pay yourself from your LLC.
What kind of attorney would I be if this didn’t have a disclaimer? I’m a licensed attorney and I practice in Utah and Idaho. I am not your attorney. This is not official legal advice. If you have any questions, please consult with a legal professional in your jurisdiction.
How to Pay Yourself From Your LLC Step #1: Set Up Your LLC
I have several videos about setting up your legal entity. They are all on my YouTube channel, so subscribe to my channel here! Setting up your LLC is usually cheap and allows for flexibility. You can have anywhere from one to 99 members, and they’re pretty easy to maintain.
To set up your LLC, you’ll first want to Google search ‘LLC’ plus the name of your state. Google will give you a bunch of results and a lot of those might be ads–look for the .gov website. It’s going to send you to the government website for the state you live in. That’s where you register your business. If it looks like a boring government website and there’s something like an eagle flag in the corner, you’re in the right place. If the website looks really smooth and slick, you’re probably not. That’s probably a fancy user-design website meant to upsell you and charge you extra!
Once you get to that .gov website, create a set of credentials such as a username and password, and answer all the questions. Pay your fee. Then, it’s going to spit out some documents, usually called “Articles of Organization” or a “Certificate of Organization.”
If you have a business based out of your home and you want to prevent having your home address publicly searchable through a database on the internet, consider using a P.O. box. It’s super important to give yourself proper protection when registering your business.
Now that you’ve got the LLC set up, you need to put your LLC documents in a safe place. I recommend putting them online in something like Google Drive or Dropbox and also printing them out and using a business safe deposit box.
How to Pay Yourself From Your LLC Step #2: Get Your EIN
An EIN (electronic identification number), also known as your tax ID, is kind of like your business’s social security number. Ideally, you want to use this number and stop using your social security number.
Fill out the IRS application again (use Google). Make sure that the information you use matches that of the new LLC that you just set up. The site will spit out the EIN. Screenshot the EIN as soon as the number pops up on your screen. You should also receive a letter along with your EIN. Print that out and save it in multiple places. Please don’t skip this step!
Biz Legal Quick Tip:
If in January or February, you get asked for your W9 and you have this new business, use your EIN, not your personal social security number.
How to Pay Yourself From Your LLC Step #3: Set Up A Bank Account
It’s now time to take your LLC docs and your EIN to the bank. You might be setting up an online bank account. If you go online, there are sometimes lower transaction fees, carrying fees, and less in terms of deposit minimums that you have to adhere to. You’re not going to get charged if you don’t keep a minimum balance.
I recommend setting up at least two accounts. Set up a main business checking account and probably a business savings account. I like to have one main account where all the money is going in and from which all the money’s being paid. Have another account as you’ll be saving money for taxes. If you don’t have any idea what I’m talking about or just don’t want to be surprised in April, check out the book Profit First by Mike Michalowicz.
He has a great, easy-to-follow formula written for online business owners. It’s not for accountants, finance gurus, or MBAs, but for normal folks like you and me so that we can make sure that we are paying ourselves in our business. The book will help you watch your expenses and make sure they aren’t gobbling up your profits while making sure that you’re not surprised by the tax man.
How to Pay Yourself From Your LLC Step #4: Set Up Your Payment Processing or Your Merchant Accounts
You will need to set up your Stripe, PayPal, Shopify, Venmo business, and anywhere else that you are accepting payment. Make sure it’s business Venmo, not personal Venmo. You are dealing with customers, not friends and family. As you set up payment processing and merchant processing for the name of your business, it’s going to want your EIN. It’s going to ask you where you want to send your money, and when it does set it up so your money gets sent to the business bank account that you already set up.
How to Pay Yourself From Your LLC Step #5: Pay Yourself
We are making money. How do we pay ourselves? This is what’s called an Owner’s Draw or an Owner’s Distribution. The good news is that you can pay yourself as much as you want. There are no rules here, except I do recommend that you leave enough money in that account to pay for your business expenses.
2 Ways to Pay Yourself
- Transfer money from your business bank account to your personal account. You can do that at regular intervals and treat it as your salary.
- Transfer money as you need it and as you make money. For example, say you have a launch and you bill on the first and get your money on the 10th. This gives you a net 10 days. You could then transfer on the 15th. You’re going to wait until all of that money hits the account, and then you’re going to pay yourself.
You want to be paying yourself, paying your expenses, and saving money for taxes that will be due quarterly or yearly, depending on your business. There is no normal amount for what each of those categories needs to be.
P.S. Watch this video if you want to learn how to be an S-corp, or if you want to know if you are leaving money on the table and want to make sure you’re not overpaying on your business taxes.
How to Pay Yourself From Your LLC Step #6: Keep the Money Separate
I know I touched on this, but I want to reiterate it because this is the main way that people ruin their LLCs. They mix their money and use their business credit card to buy personal stuff and vice versa. They write checks for business things from their personal account.
You do not want people to be able to pierce the corporate veil. It’s when someone can get through and mess up the safe border of your LLC, because they see that your money is mixed together, leaving it vulnerable to being taken. So if your business acquires a litigation judgment or debt, we want to keep that in the business.
How to Pay Yourself From Your LLC
You’re paying yourself because you work hard for your business. You didn’t want to work for a crazy tyrant boss. However, you have to make sure that you’re making money in your business. I promise you that as you get better at being on top of your money, and as you monitor and work through a solid workflow each month, you are going to be able to protect your assets while protecting yourself against liabilities. You’re also going to have a better handle on your numbers.
I hope you’ve learned about how to pay yourself from your LLC. You’re a real business owner, and you’re making money. You want to make sure that money can become yours. You definitely want to Jerry McGuire this all the way–“Show me the money!”
Make sure you subscribe to my YouTube channel. Check out some of my videos about setting up your business, protecting your brand, getting contracts, and setting things up with people so that we have good business boundaries.
If you need contracts in your business and are looking for some really solid DIY resources, head over to Creative Contracts. It’s my curated shop that gives you step-by-step instructions and color-coded, fill-in-the-blank, couldn’t-make-it-any-simpler ways for you to get what you need for your modern business. I don’t believe in selling you things that you don’t need and that you won’t actually take action on. However, I am committed to offering you the tools you’ll need to start a successful business. I’m here to empower you to be able to show up as a more confident business owner and send you out there with swagger.
Would you fail to pay an employee working as hard as you know you are? As much as you may want to be saving money or spend it on other expenses, you cannot be exempt from your payroll. That is not a recipe for sustainability. Keep the money separate, and the LLC you’ve been working hard to maintain will stay intact. Follow these six steps, and you cannot go wrong.
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