How to Pay People In LLC?

[KingHippo]

How do I pay myself if I am in a single member LLC? I've heard that I should take a salary, but for the first few months my business will not get any sales / incoming cash so I don't see how this is possible.

Realistically, the way my business is setup, I will probably only have to reinvest about 10% into the business again to keep it running strong. Thus, I want 90% of the profits to go into my personal bank account. How can I do this without salary?

Also, if I take a silent partner on with 1% of the business to avoid becoming a single member LLC, how do I pay this partner? Does this person have to do anything with their taxes or just sit back and reap the 1% reward?

[Evan]

Unless you elected to be taxed as a corporation, your default taxation is as a sole proprietorship. In this case, you do not take a salary. Instead, you'd take a draw.

Most new businesses don't pay out salaries until there becomes more substance. When you decide you'd like to get "paid", just simply write a check out to yourself. Don't withhold taxes. Make sure you do have an Owner's Draw (equity) account to post it to.

For tax purposes, none of these draws will reduce your taxable income. So say at the end of the year your figures are as follows:

100,000 - Sales
30,000 - Expenses (again, no salary for you here)
----------
70,000 = Taxable Income

You're taxed on the $70K whether you keep it all in the business, withdraw $50... or withdraw $20,000.

If you have a partner, you're then (still an LLC) taxed as a partnership. It's very much the same as above, except profits/losses are split 99/1. There really is no benefit in doing such, and you'll be making your tax return more complex. Of course, if that is ultimately what you wish to do, I'd advise consulting with a local CPA.

Good luck!