How to Pay Yourself in a Single Member LLC


Today we’re going to be talking about how to pay yourself in a single-member LLC. I want to talk about, because of so many of you that are starting as bloggers, as doing eCommerce businesses, you maybe are freelancers, photographers, whatever you might be, you are forming single-member LLCs. I know that because I’ve talked to a lot of you and that’s basically the default entity of choice. Another alternative, which I’m going to talk about in a later blog post is an S-corp. But for purposes of today, we want to talk about single-member LLCs because that does represent so many of you out there. And the biggest question that a lot of people ask is how exactly do you pay yourself with a single-member LLC? And it’s a completely legitimate, valid question that I want to help you with today.

In reality, it’s not that simple because there’s a lot of different things that you need to consider when you’re paying yourself in a single-member LLC. You have to consider what your expenses are in the business and making sure that the business is capitalized enough to pay those expenses. You have to consider what your taxes are going to be at the end of the year when you pay yourself in a single-member LLC because all the income that you get in a single-member LLC that goes in after you take out all the taxes, whatever’s leftover, that pot you have at the end of the day, that’s what you’re going to get taxed on.

Now, I like to follow a method by Mike McAlary. It’s called profit first. Basically what Mike says to do is to pay yourself two days a month. So you pay yourself on the 10th and the 25th. I kind of do distributions throughout the month. I’m not a single-member LLC. I’m an S corporation, but I’ll talk to you about what I do here. The way the profit first methodology is basically every time you get money in on the 10th and on the 25th, that’s when you pay your bills and you calculate a certain percentage of that income that’s going to go towards paying yourself a certain percentage that’s going to go into a separate tax account, a certain percentage that’s going to be for owner’s profit and a certain percentage that’s going to go towards your expenses. And as you start to do this more and more, you’re going to figure out what percentages you’re going to need to put into those different accounts.

He actually advocates, and I recommend doing this, I’ve done this for myself, setting up four different accounts for this. So the way I’ve got it right now is all my money when it comes in, it goes into my operating expenses account and that’s where the money will stay. Now, I have some money that comes out automatically through different subscriptions I have and things of that sort, but that’s where the money is. And then, whenever I need to pay myself, I will go in and look and see how much money was made between when I last paid myself and the day that I’m going to pay myself next. And usually, it’s about once a week on Fridays and I’ll look at that, I’ll take a certain percentage of that as the money that I’m going to pay myself and it’s usually about 50%, I will take a percentage that is going to go into the owner’s pay or the owner’s profit account, which is basically like a savings account that just keeps growing and growing and growing and a certain percentage that’s going to go into a tax account.

Now, the thing that you need to know about the tax account is people think, I’m going to get taxed, 20 30% or whatever it’s going to be at the end of the year. It’s not on your gross income, it’s on your net income. You’re only really getting taxed on your expenses. So if you’re holding back, let’s say 30 or 40% for taxes or for, excuse me, for your expenses, you don’t need to withhold 20% of your total gross income. You only need to withhold 20% of maybe the 30% that you’re allocating for your expenses. And if you do the math there, I’m not sure what it comes out to, but basically, it’s a much lower percent. So, I’m withholding usually anywhere from three to 6% for taxes.

Another thing I’ll say that I do here is with an S corporation, you need to pay yourself a reasonable salary. So at the end of the month, my distribution is much bigger and I use some of that money that’s been accumulating over the month in my owner’s pay account. And then I pay myself at the end of the month what is considered a reasonable salary. And again, that’s something we can talk about in another blog post. That’s only if you’re an S corporation. That’s really what you need to do. When you write this check to yourself, you’re just going to code that as a member distribution, shareholder distribution, whatever you want.

When you start earning a net income of probably 35 to $50,000 or more, then you really want to start thinking about electing S corporation status or actually forming an S corporation for your business. And the reason for that is with an S corporation, you’re paying self-employment taxes on the amount that you take out as a salary. You do not pay self-employment taxes on the amount that you take out as your distribution and you don’t actually need to take a distribution. It’s just whatever money shows up as your net income is the money that you’re going to get taxed on, on your income tax level. But with an S corporation, the self-employment tax doesn’t come into play.

With an LLC, you might never take a distribution from your business, but all that income from the LLC is going to flow through to your tax returns and you’re going to get hit with a 15% self-employment tax on all of that. That’s why I say, once you’re making 35 to $50,000 net income a year, you really want to consider S-corporation status. So that’s what I got for you today. Feel free to comment below. Let me know if you got any questions. I’m happy to talk to you about these issues. I love talking about single-member LLCs and how they can help you and your business. So thanks, folks. Have a good day and catch you next week.

How to Pay Yourself in a Single Member LLC


Today we’re going to talk about one of the most common questions I get from people that are forming LLCs, how to pay yourself with an LLC. We’re going to focus on something really important to a lot of you, and that is how to get paid with your online business.

Today’s blog is going to focus primarily on how to pay yourself if you’re running a single-member LLC. If you’re a multi-member LLC, it’s going to be a little bit different, and that’s the subject of another blog post. But today we’re going to talk about a single-member LLC, and we’re going to talk about the two different ways that you can pay yourself as a single-member LLC, and that’s as a disregarded entity on the one hand, or an S corporation, as far as taxing status on the other. So the first method to pay yourself is if you’re just a blanket garden variety, vanilla single-member LLC, you’ve not elected any type of S corporation status. And the way to do that is you are going to write yourself a check.

The second method is to pay yourself what is called a reasonable salary. And when you do that, you’re going to withhold payroll taxes, FICA, state, and federal, withholding, all those types of things will be done, because you’re going to pay yourself a salary, and you’re going to receive a W2 at the end of the year, just like you would if you were an employee for any other business. So you do this when you’ve made an S corporation for your business. And that’s because if you’ve elected to be taxed as an S corporation, you have a legal requirement to pay yourself that reasonable salary we just talked about.

You’re probably wondering what is a reasonable salary? That’s a great question. I’m glad you asked. So a reasonable salary is something that … it’s a term of art that was created by the IRS, and it’s going to vary depending on the type of business you’re in and your role in that business. So generally speaking, what a reasonable salary is, it’s the amount of money that you would pay yourself if instead of being the owner of the business you were actually the technician doing the work in the business. Does that make sense? So for example, if you are a law firm, it’s the amount of money that I would pay myself if I were a lawyer working in a similarly sized law firm. If you are, let’s say an agency owner, it’s the amount of money that you would pay that graphic designer to do the work of designing graphics for your clients or customers, so when you elect to be taxed as an S corporation, it does get slightly more complicated, and a little bit more confusing when it comes to the payroll aspects of your business.

I’m going to venture to guess, and this isn’t that much of a guess, I don’t think this is that farfetched, that if you elect to be taxed as an S corporation, in all likelihood you’re going to need to go ahead and hire a bookkeeper, or an accountant, or a third party agency of some sort, service, who can help you run payroll for your business.

If you elect to be taxed as an S corporation under no circumstances, unless you have an accounting background, and you know how to do these things, should you try to do payroll on your own? You will, will, 100%, I guarantee mess this up. And not only that, for like 50 bucks a month, you can hire a service that’s going to do all this for you. They’re going to file all the forms. They’re going to file your quarterly taxes. They’re going to deposit the money in your account. They’re going to do all these things for you.

For the vast majority of you out there who operate as an LLC, you’re going to be what’s called a disregarded entity, which means that you have not yet elected S corporation status, or C corporation status, or any taxation status for that matter. For those of you that fall into this situation, you basically can pay yourself whatever you want, whenever you want, however you want from your business bank account to your personal bank account. That means you can write a check. That means that you can do an electronic transfer. If your bank allows a business to personal transfers, some do, some don’t, or you can just withdraw cash and deposit in your account. The only requirement that you need to be concerned about is to make sure your LLC is properly capitalized, so that you don’t run the risk of violating any terms for purposes of piercing the corporate veil.

Let’s touch on briefly how much you actually are going to pay yourself as the owner operator of your single member LLC. For a single member LLC, each month when you get revenue in, you’re going to pick a couple of days, let’s say the 10th and the 25th, and you’re going to make target allocations. So that might be anywhere from 30%, to 50%, to 60% of your revenue is going to go to your owner’s pay. And you’re going to take that amount, that percentage from your revenue, and you’re going to transfer that into an account for owner’s pay. The remainder, whatever’s left, is going to be divided up between profit, taxes, and expenses for the business, and you’re going to have separate allocations for each of those, and you’re going to transfer the money into a separate account for those categories as well.

So you’re going to have four accounts, owner’s pay, expenses, taxes, profit, and that’s how you’re going to pay yourself. Thanks so much for reading this blog post.

How To Become an Entrepreneur – 10 Things No One Tells You


This blog is about how to become an entrepreneur and specifically, 10 tough truths that no one tells you. So I spent 20-plus years in corporations and agencies and I spent the last six years building a personal brand and an agency. And let me tell you, entrepreneurship and being self-employed is very different than being an employee. Entrepreneurship in society over time has been glorified in media and online. Yes, some things are great about it, but some things are not so great. Some things are really tough. And so I wanted to talk to you a little bit today about what some of those unique challenges are that you discover when you become self-employed or when you become an entrepreneur.

Working solo or with a team, large or small, these are some tough truths about being an entrepreneur.
1: Self-doubt is constant and it’s normal.
No matter how much experience you have, know how much money you have, you will question your decisions daily. Decision making as an entrepreneur or a solopreneur is really hard. That’s why I’m a member of a mastermind group and I’m starting a paid mastermind group called the Brand Design Master’s Guild. Please look for a link to that group in the description. It’ll be launching very soon.

By being a member of a mastermind, you have a group of colleagues, trusted partners who can help you make decisions, who understand your business, understand your challenges and can give you really good advice. So number one is that self-doubt in your decision making is normal and it happens all the time.

2: You have to be your cheerleader.
You have to be your champion. If you need a lot of external praise or a lot of external validation in what you do, being a solopreneur or freelancer or consultant and entrepreneur is going to be really hard for you. You have to feed yourself, you have to stay positive and that’s got to come from within you. Napoleon Hill, who wrote a book in 1937 called Think and Grow Rich lists psychological positivity as the most important and critical success factor that there is.

3: When anything goes wrong, it’s your fault.
Now, you may even work with partners or stakeholders or other people who help you do what you do, but if something goes wrong, it’s coming down to you. The buck stops with you, you’re the person who’s going to have to fix it. And that’s one of the tough truths about being an entrepreneur.

4: Self-discipline is everything.
No one tells you to get motivated. No one tells you you got to wake up in the morning or get to the officer, get working on that project. No one tells you to get going. You have to be very self-motivated as an entrepreneur.

5: You are never done.
No matter how much you do, how many things you accomplish, there’s always more to do. There’s always more you want to do. You are never really totally off. Your mind is always churning and planning and working on the next thing and thinking about the next thing that you want to accomplish. You’re never done. And that’s one of the tough truths that you have to get used to and find peace with when you’re an entrepreneur.

6: Loneliness is real.
I’m sure you’ve heard a lot about how the entrepreneurial life is lonely and I got to tell you, it’s true. My first year of being solo was a shock to the system. I went from managing really large teams in a corporate environment to being alone in my home office. And after about a year I started to go pretty badly. You have to actively combat the loneliness when you’re an entrepreneur. You can do that by having zoom calls with friends or other entrepreneurial buddies. You can do that by joining a mastermind or improving your network connections and really pushing yourself out of your comfort zone to connect with people.

As a creative professional, a lot of us tend to be introverted and it’s easy to isolate and not be connected and that exacerbates that loneliness. And then some people are more extroverted and that loneliness is even more severe because they need that kind of personal connection. And being an entrepreneur or solopreneur, if you’re an extrovert, the loneliness is even tougher. So that’s the tough truth of being an entrepreneur.

7: You have to know-how and learn how to prioritize things without help and input.
You have to learn time management. You have to learn how to build systems and prioritize and find methods of working that work for you. Do you do the biggest things first? The toughest things first? Do you do the easiest things first? Do you calendarize everything? Do you just take things on as they come across your desk? You have to really learn how to prioritize and what works for you.

8: You can’t do it all yourself.
When it comes right down to it, the idea of a solopreneur is a myth. No one does it on their own. Everyone has somebody that helps them out with something. It may just be someone who helps you do your financial books or someone who helps you do scheduling or administration. You can’t do everything yourself. You can’t know everything. As much as you want to learn and teach yourself everything, there’s not a way for you to know how to do everything perfectly. You have to be teachable, but you also have to understand and learn to recognize when it’s something that you can’t do or when it’s something that’s not appropriate for you to spend your time doing. So you have to realize one of the tough truths is that you can’t do it all yourself and you have to build a larger network of people who are going to help you in your business.

9: When it right down to it, you do wear all the hats.
The buck does stop with you. You have to handle design and business development and sales and account management and finance and IT and office supplies. You have to become in a lot of regards, a generalist, not just doing design, not just doing an illustration or video editing or whatever it is that you do. If you are running a business, you have to do and learn a lot more things, become more of a generalist than you probably are. So keep that in mind. There’s going to be a lot of growth or a lot of stretching your capabilities into areas where you might not be as comfortable. You have to wear all the hats.

10: your mission has to be bigger than yourself:
Your mission as a business person, as an entrepreneur, solopreneur, a freelancer, a consultant, whatever that is, your mission has to be bigger than yourself because being an entrepreneur is so taxing. You have to have a mission that’s going to fuel you. You have to have a problem that you are solving, a higher purpose that you have to your work that’s going to energize and fuel and motivate you to get you through all of these tough truths of being an entrepreneur. How you can stay motivated, how you can stay focused, how you can make decisions through your business. It can’t be just money that’s motivating you, it can’t be just fame, it can’t be just power. You have to have a group, a population, a consumer that you are serving, that you’re trying to provide a solution to. That’s a higher purpose than just something that’s about you.