How Does an LLC Owner Get Paid?
The limited liability company (LLC) is a peculiar form of business type, and a recent addition to the types of businesses. There are two types of LLC’s – a single owner LLC (called a “single-member LLC”) and a multiple-owner (multiple-member) LLC.
As a member of an LLC, either a single member or one of multiple members in the business, you are a business owner, not an employee of your company.
You don’t receive a paycheck. Instead, each member has a capital account. When you become a member, you may need to contribute money to this account. When you need money, you draw out (take a distribution from) your capital account.
How an LLC Owner’s Capital Account Works
When you take money out of your LLC, you are taking money out of your ownership account for the business. This ownership (or equity) is shown in your capital account. The capital account is shown on your business balance sheet.
If you need money for personal living expenses, you take a from your capital account. Sometimes this is called a “distribution” or a “draw.” The draw is usually in the form of a check, written to you personally on a business check. But this check is NOT a paycheck. No federal or state income taxes are withheld from your draw, nor is there any FICA tax (Social Security/Medicare) withheld from your draw.
Make sure the draw is paid to you by the business, using the business checking account, and that the draw is deposited into your personal checking account.
If you don’t have any money in your capital account, you can’t draw any money out for personal expenses. For example, if you start a new business and you have little income and lots of money that must be paid out – for rent, equipment, interest on your business loan – there is nothing left to pay you for personal expenses.
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