How much to pay myself from my LLC

You see the balance in your business checking account growing. It feels good to see the numbers climb. Then the anxiety hits. You wonder if that money is actually yours to spend. You worry about a surprise tax bill at the end of the year. You worry that taking money out now will leave the business dry when a big expense hits next month.

This is the most common paralysis we see among consultants and creatives in the Dallas-Fort Worth area. You are generating revenue. You are doing the work. Yet you are afraid to pay yourself for it.

Some business owners react to this fear by hoarding every cent. They live off savings or a spouse’s income while the business account bloats. Others go to the opposite extreme. They treat the business account like a personal ATM. They swipe the company card for groceries, gas, and dinner dates without a second thought.

Both approaches are dangerous. The hoarder burns out because they feel they are working for free. The spender creates a bookkeeping nightmare and risks legal trouble.

You need a middle ground. You need a system that gives you permission to pay yourself a consistent wage.

The Difference Between Salary and Draw

The first step is vocabulary. Most solo business owners use the word "salary" incorrectly.

If you established your business as a standard Limited Liability Company (LLC) and you have not filed extra paperwork with the IRS to be taxed as a corporation, you cannot pay yourself a salary. A salary implies you are a W-2 employee. You are not an employee of your own LLC. You are the owner.

You do not get a paycheck. You take an Owner’s Draw.

This is a transfer of funds. You move money from your business checking account to your personal checking account. It is that simple. You write a check to yourself or initiate a bank transfer.

The IRS does not tax the draw itself at the moment you take it. The IRS taxes the net profit of the business. It does not matter if you leave the profit in the business account or transfer it all to your personal account. You will be taxed on the profit regardless.

This realization usually helps with the hoarding mentality. Leaving the money in the business account does not hide it from the IRS. You might as well move it to your personal account where it can pay your mortgage.

The ATM Trap and the Corporate Veil

While you can technically transfer money whenever you want, you should not use the business account for direct personal spending.

This is the ATM trap. You are at the grocery store and you use the business debit card because you know there is money on it. This is bad practice.

It makes your bookkeeping expensive. Every time you buy a coffee or a pair of shoes with business funds, your bookkeeper has to ask you about it. They have to categorize it as a personal draw. This wastes time and money.

It also risks piercing the corporate veil. You formed an LLC to protect your personal assets. If someone sues your business, they generally cannot take your house or your car. They can only take the assets inside the business.

If you treat your business account like a personal piggy bank, a judge might decide you are not running a real business. They might decide you and the business are the same entity. If that happens, your personal assets are no longer safe.

Keep the boundary clear. Transfer a lump sum to your personal account. Spend from there.

Calculating the Magic Number

You want a formula. You want to know exactly how much you can transfer without breaking the business.

There is no universal dollar amount because every business has different margins. A consultant working from a laptop has lower overhead than a photographer renting a studio.

We recommend a percentage-based approach rather than a fixed dollar amount. This allows your pay to fluctuate with your revenue.

1. Determine Your Personal Baseline

Look at your personal household budget. What is the absolute minimum you need to contribute to keep the lights on at home? This is your survival number. If your business cannot generate enough profit to cover this number after a reasonable ramp-up period, you may have a viability problem.

2. Calculate Your Business Overhead

Review your last three months of business expenses. Do not include one-time startup costs. Look for recurring costs. This includes software subscriptions, insurance, rent, and contractor fees. Calculate the average monthly cost.

3. The Tax Buffer

This is where most people fail. In a traditional job, your employer withholds taxes for you. As a business owner, you are the employer. You must do the withholding.

A safe starting rule of thumb is to set aside 30% of your profit for taxes. This covers federal income tax and the self-employment tax.

The 50/30/20 Rule for LLCs

If you hate math, start with this simplified split of your revenue. Every time you receive a payment from a client, divide it up.

• 50% for Owner’s Pay: Transfer this to your personal checking immediately. This is your reward for the work.
• 30% for Taxes: Transfer this to a separate business savings account. Do not touch it until quarterly tax payments are due.
• 20% for Operations: Keep this in the main operating account. This covers your software, supplies, and builds a buffer for lean months.

This is a starting point. If your overhead is very low, you might be able to pay yourself 60% or 70%. If your overhead is high, you might only be able to take 40%.

The key is consistency. Do this every two weeks or every time a large deposit hits.

Implementing the Routine

Do not wait until the end of the year to figure this out. Make it a rhythm.

Pick two days a month. The 1st and the 15th work well. On those days, look at your total bank balance. Look at the bills coming due in the next two weeks.

Leave enough money in the operating account to cover those bills plus a small cushion. The cushion prevents overdrafts if an automatic payment hits early.

Take the remaining profit. Move 30% of it to your tax savings account. Move the rest to your personal account.

This removes the emotion. You are not guessing. You are following a process.

A Note on S-Corps and "Reasonable Salary"

As your business grows, your accountant might suggest electing S-Corporation status. This is a tax election, not a different business entity type. You can still be an LLC and be taxed as an S-Corp.

This usually becomes beneficial when your net profit exceeds roughly $60,000 to $80,000 a year. At this stage, the rules change completely.

In an S-Corp, you are required to be an employee. You must pay yourself a "reasonable salary" via a formal payroll system. This means issuing a W-2, paying into Social Security and Medicare, and filing payroll tax returns.

If you are still a solo operator making $50,000 a year, you likely do not need to worry about this yet. Stick to the Owner’s Draw method. It is simpler and costs less to administer.

Summary

You started this business to support your life. You did not start it to serve as a terrified custodian of a bank account.

Your money needs to move. It needs to flow from the client, through the business, and into your personal life.

Stop buying groceries on the business card. Stop leaving all the profit in the business account out of fear.

Open a separate savings account for taxes today. Start transferring 30% of every check into it. Then transfer the rest of the profit to yourself.

You have earned it.