There are several steps to doing payroll yourself with an LLC. In fact, there are a few different methods for self-employed LLC entrepreneurs to compensate themselves. Usually, these entrepreneurs take a salary or an owner’s draw. Alternatively, you can buy a franchise to run operations smoothly. All methods have differing requirements and regulations around them. As an entrepreneur, you should learn some of these stipulations to maintain regulatory compliance when paying yourself. In this post, we’ll discuss how to do payroll yourself with an LLC.
Choose Payment Methods
The first step in doing payroll yourself is determining which LLC self-compensation option best fits your needs. If you’d like a regular, predictable stream of income, pay yourself as an employee. However, you need to pay yourself a reasonable wage for your industry and workload. Alternatively, you can pay yourself as an LLC member. This way, you receive a percentage of your LLC’s profits from that fiscal year. Typically, members are paid once at the end of each fiscal year, but you can draw from your LLC’s profits monthly. Additionally, you can hire yourself as an independent contractor to maintain the LLC’s budgets. Surely, provide direction to the rest of the self-payroll process by determining the best compensation methods for you specific needs.
Make Owner’s Draw
Making an owner’s draw is the second step in LLC self-payrolling. In the eyes of the IRS, single-member LLC’s are disregarded entities. This means your personal income and the LLC’s profits are the same. The owner’s draw indicates you are taking some of these profits for personal use, while the rest stays with your LLC. To make the draw, simply write yourself a check for your desired amount from your business account. Then, deposit the check to your personal bank account. From there, record the check as an owner’s draw in your LLC’s books. Keep in mind your owner’s draw amount cannot exceed your equity in the LLC. If you need extra capital, there are many easy small business loans to secure. Absolutely, indicate your personal use intentions with an owner’s draw.
Report Personal Taxes
The third step in doing LLC payroll yourself is reporting your personal taxes. For instance, if your single-member LLC makes $50,000 in profits one year, you will report these earnings on your personal tax return. If your owner’s draw was $5,000, for example, you do not need to pay taxes on it. This is because you already paid taxes on the entire $50,000. However, you have to pay FICA self-employment taxes on your draw. Moreover, maintaining enough funds in your LLC accounts is crucial. Certainly, eliminate taxes on your owner’s draw by reporting your personal taxes.
File LLC Tax Return
Filing a separate tax return for your LLC is the next step in doing payroll yourself. The tax filing requirements for LLCs vary greatly from state to state. Therefore, understanding the filing requirements of your state is crucial. Additionally, many entrepreneurs reduce self-employment taxes by choosing to tax their LLCs as corporations. However, doing so requires separate payroll processes. Moreover, consider how to find lost money you may be owed when filing these taxes. Definitely, adhere to local tax filing regulations by filing a separate tax return for your LLC.
Maintain Corporate Veil
Lastly, maintaining what experts refer to as the “corporate veil” is the final step in doing LLC payroll yourself. The corporate veil protects you from being personally liable for business debts. Severe undercapitalization and inadequate separation between the business and its owners often lift the corporate veil. To maintain it, your LLC needs a separate bank account, credit card, and transactions from its owner. Moreover, you, as the owner, cannot take company money for personal use without designating it as an owner’s draw. Of course, avoid personal liability for your LLC’s debts by maintaining the corporate veil.
Doing payroll yourself with an LLC can be done in a myriad of ways. For example, start by providing direction to the rest of the self-payroll process via determining the best compensation methods for you specific needs. Second, indicate your personal use intentions with an owner’s draw. Third, eliminate taxes on your owner’s draw by reporting your personal taxes. Next, adhere to local tax filing regulations by filing a separate tax return for your LLC. Finally, avoid personal liability for your LLC’s debts by maintaining the corporate veil. When searching for how to do payroll yourself with an LLC, consider the steps described above.