Paying yourself from your business

Once your business starts generating profit, an underrated question is: how do you actually get the money from the business to your personal checking account? The answer depends on your structure, and getting it right can save thousands in taxes.

Sole proprietors and single-member LLCs

You don't 'pay yourself' in a formal sense. All business profit flows through to your personal taxes automatically. You can move money from your business account to your personal account whenever you want — it's called an 'owner's draw' and it doesn't affect taxes because the profit is already yours. Just keep records so you can tell a business expense from a personal withdrawal.

S-Corp owners

This is where it gets interesting. S-Corp owners must pay themselves a 'reasonable salary' via actual payroll — W-2 wages, withholding, the whole nine. Whatever profit is left after that salary can be taken as a distribution, which is not subject to the 15.3% self-employment tax. This is why people elect S-Corp status once profits are high enough — the savings on the distribution portion.

The mechanics

1. Use a payroll service (Gusto, OnPay, ADP, QuickBooks Payroll) to run your S-Corp salary. They handle federal/state withholding, FICA, and year-end W-2s.
2. Keep distributions separate from salary in your accounting. They're reported differently on your K-1.
3. Don't forget to pay yourself on a regular schedule — sporadic paychecks look suspicious and defeat the purpose of the structure.