Guide · 2 min read
Paying yourself from your own company
How you pay yourself depends entirely on how the entity is taxed. Getting the mechanics wrong creates tax problems that are tedious to unwind.
The short answer
Owners of a disregarded or partnership-taxed LLC take owner's draws, with no withholding, and are taxed on business profit rather than on withdrawals. Owners of an S-Corporation must pay themselves a reasonable salary through payroll before taking distributions. C-Corporation owners who work in the business are employees.
| Entity treatment | How you take money | Withholding |
|---|---|---|
| Disregarded LLC | Owner's draw | None — taxed on profit |
| Partnership LLC | Distributions per the operating agreement | None — taxed on allocated profit |
| S-Corporation | Reasonable salary, then distributions | Payroll on the salary portion |
| C-Corporation | Salary as an employee; dividends | Payroll; dividends taxed to you |
The mechanics that keep it clean
- Pay from the business account to your personal account, never from a business card to a personal expense.
- Label the transfer as a draw or distribution in the books.
- Keep it regular rather than ad hoc — it makes the records easier to defend and your own planning easier.
- Track cumulatively. Distributions exceeding your basis can create taxable gain.
- Foreign owners: log every transfer for the Form 5472 filing.
Frequently asked questions
- Am I taxed on what I withdraw?
- In a pass-through entity, no — you are taxed on the profit allocated to you whether or not you withdrew it. This surprises founders who left money in the business and still received a tax bill on it.
- How much salary must an S-Corp owner take?
- A reasonable amount for the work performed, judged against what the role would command at arm's length given your duties, experience and industry. There is no safe-harbour percentage, and paying an implausibly low salary is a known audit trigger.
- Do foreign owners need to report withdrawals?
- Yes. For a foreign-owned single-member LLC, money moving between you and the company is a reportable transaction on Form 5472 — including contributions in and distributions out. Record each transfer as it happens rather than reconstructing them later.
Sources
Last reviewed . Verify against the primary source before acting.
Founders 8 does not provide tax advice. Tax residency depends on facts and rules specific to each jurisdiction — review your position with a qualified adviser.
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- Hiring internationally: contractor, EOR or your own entity