Episode 50. How to Pay Yourself as an LLC Owner in 2026

How to pay yourself as an LLC owner in 2026 — I break it down in 3 simple steps. Whether your LLC is taxed as a sole proprietorship, partnership, S corporation, or C corporation, I walk you through exactly how to pay yourself from your LLC the right way.

I cover the four ways your LLC can be taxed and what each one means for how you take money out of your business. I explain the difference between owner's draws and distributions, how self-employment tax works at 15.3%, and when electing S corporation status can save you tens of thousands of dollars. If your LLC is making $100,000 or more in profit, I show you how to structure your compensation the smart way.

I also get into the implementation side — how to determine your current tax classification, whether an S corp election makes sense for you, setting up payroll, taking reasonable compensation, and making your quarterly estimated tax payments on time. This is your complete guide to paying yourself legally and tax-efficiently as an LLC owner in 2026.

🆓  Download FREE PDF: 7 Write-Offs Every S-Corporation Business Owner MUST Know:   https://7taxwriteoffs.com/?el=podcast&htrafficsource=buzzsprout

*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your attorney, accountant, tax preparer, and/or other advisor regarding your specific situation or your client’s specific situation. The information and all accompanying material are for your use and convenience only.

Transcript

What We’ll Cover Today

SPEAKER_01 0:00

Hey Boris here, and today I'm gonna show you exactly how to pay yourself as an LLC owner in 2026. And I'm gonna do this in three simple steps. If you're running a profitable business as an LLC, then this is for you. So definitely stick around because there's gonna be a lot of great information for you. Here's what we're gonna cover. Alright, number one, I'll break down the different LLC tax strategies and what they mean for you and how to pay yourself. Second, I'll show you the actual methods that you can use to take the money out of your LLC legally, whether that's owner's draws or owner distributions, and we're gonna cover all of that. And third, I'll walk you through the implementation steps so you know exactly what to do next and how to pay yourself. Ready? Let's dive in.

SPEAKER_00 0:43

Welcome to the tax reduction podcast for money-making entrepreneurs with Boris Musheev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies. And this podcast is all about saving you money on taxes. Boris will share with you in-depth and easy to understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.

S Corporation Strategy And Savings

When A C Corporation Might Fit

SPEAKER_01 1:17

So let's understand your LLC tax structure because here's the thing: how you pay yourself depends entirely how your LLC is taxed. An LLC is actually a legal structure, it is not a tax structure. Instead, your LLC gets taxed in one of the four ways, and you get to choose what that way will be. But I'm gonna break it all out for you. Now, the first one is a single member LLC, which is also called a disregarded entity. So if you are the only owner of your LLC and you haven't made any special elections, how to be taxed as an LLC, then IRS says you are a disregarded entity. This means the IRS treats your business income as your personal income, not a business income, okay? So you're gonna report everything from that business on what's called a schedule C of your personal tax return because that is a personal income. Now the question becomes well, if that's the case, how do I pay myself? Well, you simply transfer money from your business account to your personal account. These are called owner's draws, okay? There is no payroll, there is no W-2, but here's the catch. When you transfer that money to yourself, which you're gonna pay regular tax on it, you will also pay self-employment tax on it, which is 15.3% on top of your regular income tax. In 2026, the maximum income on which you're gonna pay self-employment tax is$184,500. So anything after$184,500, you will continue paying the Medicare tax of 2.9%. If you have multiple owners in your LLC, that could be you, your partner, or your spouse, and you haven't made any special tax selections, you just file a partnership tax return. Each partner is going to receive a K1 from the partnership. Now, what is a K1? K1 basically shows each partner's share of profits or losses. If you have profits, you would still pay 15.3% self-employment tax on those profits, just like you would if you're a single member LLC. Let's talk about the LLC that is taxed as an S corporation. Now, this is where it gets very interesting. You can elect to have your LLC taxed as an S corporation. You have to elect to be an S corporation by filing this Form 2553. Now, this is a game changer for a lot of profitable business owners. And here's how it works. First, you're gonna pay yourself a reasonable compensation through payroll from your S corporation. Remember, it is still an LLC, but is now filing and paying taxes as an S corporation. Then you're gonna take out a salary from that S corporation and you're only gonna pay the self-employment tax only on that salary. That's the amazing part of it. Okay, the rest of the profits in the business can be taken out as distributions, and these distributions are not subject to the self-employment tax compared to being a single member LLC or compared to being an LLC that is filing taxes as a partnership. When you have an LLC filing taxes as an S corporation, you're saving a lot of money on self-employment taxes on which you do not pay it on the profits. This is true whether you're a single member LLC or whether you have partners or your spouse is a partner. Now, here's also something very interesting. LLC can choose to be taxed as a C corporation by filing Form 8832. This is less common for small business owners because you're gonna have to pay yourself a salary, and then the corporation will pay taxes on the profits of that business, and then if you ever take out distributions, you will pay dividend taxes on that same distribution. So, generally speaking, LLC being taxed as a C corporation is way less common with business owners. Does it make sense in some situations to have an LLC tax as a C corporation? The answer is absolutely yes. Now let's talk about how the actual methods work when you pay yourself from your LLC.

SPEAKER_00 5:15

If you have a tax preparer and you do not have a tax advisor, the only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. Boris put together a free PDF for you, the business owner. 7 tax write-offs every S Corporation business owner must know. In this PDF, you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.

Owner’s Draws And Profit Taxation

Reasonable Salary And Distributions

Implementation Steps And Costs

Quarterly Estimates And Annual Review

SPEAKER_01 5:46

First, I want to start with owner's draws. Like I said, if you are taxed as a sole proprietorship or a partnership where you're taking owner's draws, you just transfer money from your business account to your personal account whenever you need it. But here's what you, the business owner, need to understand. You're not taxed when you take the draw. You are taxed on the profit of the business. So if your LLC makes a million dollars in profit this year, you're gonna pay tax on the entire million dollars. Even if you only took$500,000 of your business. Now you might be thinking, well, if I only took a half of it now, which is a half a million, but I have the same half a million now sitting in a business bank account, will I pay tax on it again next year? The answer is no, because you already paid tax on it in the first year. Let's switch gears and let's talk about when you've actually elected for your LLC to be taxed as an S corporation. If you are an S corporation, you must pay yourself a reasonable salary for the work that you do in the business. What's reasonable? It depends on your industry, your role, your location, and what similar positions pay in the market for the services that you do for your own business. So if you're a business owner run running a consulting firm, after payroll, you've got profits left in your S corporation. How do you take out those profits and what are they called? They are called distributions. Now, these distributions are not subject to the 15.3% self-employment tax, which is where a lot of tax savings for an S corporation owner comes from. So let's do an example. Let's say your LLC that is being taxed as an S corporation makes a million dollars in profit and you pay yourself a hundred and fifty thousand dollar salary. You're gonna pay self-employment tax only on that$150,000 salary. The remaining$850,000 will not be subject to self-employment tax, which could save you tens of thousands of dollars on self-employment taxes. Why? Because you had your LLC, taxed as an S corporation, right? That's number one. Number two, took reasonable compensation, and number three, took distributions which are not subject to self-employment taxes. All right, the step three, the implementation. Buckle up, take notes because this is going to be cool. Number one, let's determine your current tax classification. First, you need to figure out your current LLC. How is it being taxed? Are you a single member LLC with no S corporation or C corporation election? That means you're a disregarded entity. Do you have partners, but you haven't made an S corporation or C corporation election? That means you're a partnership and that means you're paying the maximum self-employment taxes. Alright, now that you made that determination, then you need to run the numbers whether an S corporation election makes sense. But here's what to consider: if you're gonna file your taxes as an S corporation, you may have some additional costs. For example, you may need to file an S Corporation tax return, which will probably cost you about$2,000. You also need to hire a payroll company to run payroll, that will probably cost you about$600 or more a year. So, does it make sense for you to pay all these costs while being an S Corporation saving money on taxes? Like I said, if you're making$100,000 profit in your S corporation, most likely it will make sense. So speak to your tax advisor, run the numbers. So after figuring out what is your current status, and if you are making$100,000 or more in profit in your LLC and you decide that to elect an S Corporation status is the best for you, then that's amazing. What you need to do now is to properly set up payroll. I do want to talk about a very important step. So if you've decided to be an S corporation from an LLC and you take out a reasonable compensation, now you're gonna take out distributions. Okay? Now, what you're likely not gonna do is not make on time quarterly estimated tax payments on those profits that you make in an S corporation. Now, quarterly estimated tax payments are due on April 15th, June 15th, September 15th, and January 15th of the next year for a previous year. Now, work with your tax advisor to calculate what you should be paying each quarter. I want you to review this strategy annually. Here's the thing the tax laws change, your business changes, your income changes. What made sense last year may not make sense this year. You need to sit down with your tax advisor at least once a year, ideally at the beginning of the year, to review your structure and plan for the year ahead and plan for your salary ahead. So there you have it. How to pay yourself as an LLC owner in 2026. And before you go, make sure to grab the seven tax write-offs that every S Corporation business owner must know. It's a free PDF. Remember, you don't know what you don't know when it comes to taxes. That's why you need a knowledgeable tax advisor in your corner who actually answers your emails, meets with you more than once a year, and brings real tax strategies to the table. Thank you, and until next time.

Free Resources And Next Steps

SPEAKER_00 10:35

That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to www.taxplanningcall.com. That's www.taxplanningcall.com. And be sure to subscribe to our podcast to be notified when the next strategy is released.