Can I Put Myself On Payroll as an LLC?

Introduction.

As a business owner, you may have wondered whether you can put yourself on the payroll when you operate your business as a Limited Liability Company (LLC).

An LLC is a popular business structure known for its flexibility, liability protection, and tax advantages.

However, unlike a traditional employee, an LLC owner is typically considered self-employed or a member of the company.

So, can you put yourself on payroll as an LLC? In this article, we’ll explore the possibilities, considerations, and steps involved in paying yourself a regular salary from your LLC.

Understanding the Basics of an LLC

Before diving into the payroll question, let’s briefly review what an LLC is.

An LLC is a legal business structure that combines the limited liability of a corporation with the flexibility and simplicity of a partnership or sole proprietorship.

LLCs are typically managed by their owners, known as members, and they offer pass-through taxation, meaning profits and losses pass through the business to be reported on the member’s tax returns.

Can I Put Myself on the Payroll as an LLC as The Owner?

Yes, as an LLC owner, you can put yourself on payroll, but it’s essential to understand that the process differs from how traditional employees are paid. Here are the key steps and considerations:

1. Determine Your Tax Classification.

LLCs can choose their tax classification for federal income tax purposes. By default, single-member LLCs are treated as sole proprietorships for tax purposes, while multi-member LLCs are considered partnerships.

However, LLCs can also elect to be taxed as a corporation (either a C-corporation or an S-corporation).

2. Payroll for Single-Member LLCs.

If you’re a single-member LLC and have not elected corporate tax treatment, you are considered a sole proprietor for tax purposes. In this case, you typically cannot put yourself on the payroll like a traditional employee.

Instead, you would report your business income and expenses on Schedule C of your tax return (Form 1040), and your net profit is subject to self-employment taxes (Social Security and Medicare).

You can pay yourself by taking owner’s draws or distributions directly from the LLC’s bank account, but these are not considered payroll wages.

3. Payroll for Multi-Member LLCs.

If your LLC has multiple members and has not elected corporate tax treatment, it is treated as a partnership for tax purposes.

In this case, you and other members can take distributions based on your ownership percentages, but these are not considered wages.

Partners in a multi-member LLC are not considered employees and do not receive a traditional payroll.

4. Electing Corporate Tax Treatment.

If you want to put yourself on the payroll as an LLC owner, you can choose to elect corporate tax treatment, either as a C-corporation or an S-corporation.

By doing so, you can create a formal employment relationship with your LLC, receive a regular salary, and have payroll taxes withheld, just like any other employee.

5. Compliance and Reporting.

If you decide to put yourself on the payroll as an LLC owner, you must comply with federal and state payroll tax requirements, including withholding and remitting payroll taxes, issuing W-2 or 1099 forms, and following labour laws.

6. Seek Professional Guidance.

Given the complexity of payroll, taxation, and compliance, it is strongly advisable to consult with a tax professional or accountant who specializes in LLCs and payroll to ensure you meet all legal requirements and make informed decisions.

Conclusion.

While putting yourself on the payroll as an LLC owner is possible, it involves careful tax planning and compliance with federal and state regulations.

The appropriate approach depends on your LLC’s tax classification and your specific business goals.

Consulting with a qualified professional can help you make the right choices and ensure that you manage your LLC’s finances and payroll effectively.