Single Member LLC Pay Owner

As a single member Nevada limited liability co is there a general rule of thumb of how much one ought to pay themself as owner?

Answer

As a single-member LLC, you can be treated as a disregarded entity by the IRS and therefore there are no limits or requirements on how much of the LLC’s profits you can pay yourself from.

Instead, you will be taxed on all the LLC’s profits whether you take a draw or not. This is different from S-corps, where there are complicated rules on minimum salaries and “accumulated earnings tax” if you leave too much money in the corporation.

You don’t need to worry about those issues with an LLC. From a business perspective, you should probably leave enough money in the LLC to act as working capital. Again, this is a business decision, and you might choose to utilize credit rather than forgo personal income.

As an LLC, you are permitted to elect S-Corporation tax status by using IRS Form 2553. It is beyond the scope of this page to discuss the detailed pros and cons of s-corporation status for your LLC.

Generally, the pro of s-corporation status from a tax standpoint is that you could avoid Medicare taxes on the business’s income by recieving it as a dividend instead of either a salary or self-employment income. Update: The Affordable Care Act has enacted a medicare tax on dividends for many taxpayers.

The major con of s-corporation tax status is that there are restrictions on the types of owners of an s-corp and the number of owners.

Converting an ongoing business to s-corporation status can have tax conequences, so you really need to have an accountant familiar with small business accounting (NOT the guy who does 1040-EZs for 2 months a year for one of the tax-return mills) look at your situation.

Back To LLC Questions & Answers