How much to pay yourself

Here is a step-by-step framework for figuring out how much to pay yourself when you have an LLC…

1. Confirm your LLC’s tax setup

   • Default (single-member = sole-proprietor; multi-member = partnership) → you take an owner’s draw

   • S-Corp election → you pay yourself a “reasonable salary” (W-2) + the rest as distributions

2. Map your personal “must-have”

   • Tally your monthly living costs: rent/mortgage, childcare, groceries, insurance, utilities, debt payments, etc.

   • Add a tax buffer: plan on setting aside 25–30 % of whatever you draw for federal, state & self-employment taxes

3. Gauge your business cash flow

   • Pull the last 3–6 months of P&L for the LLC

   • Compute average net profit = total revenue – all operating expenses

4. Decide on a draw-vs-reinvest split

   • A common rule of thumb is to pay yourself 40–60 % of net profit each period

     • If you need runway or are investing in growth → lean toward 40 %

     • If you need cash flow personally → lean toward 60 %

   • Example: if your LLC nets $5,000 /mo, a 50 % draw = $2,500 to you, $2,500 stays in the business

5. Factor in S-Corp payroll (if applicable)

   • Determine a “reasonable salary” for your role (market rate for a digital marketing consultant in your region)

   • Run payroll on that amount (with proper withholdings) before taking any distributions

6. Set a consistent cadence

   • Choose a fixed date each month (or quarter) for your draw/payroll

   • Automate the transfer or run payroll so you don’t accidentally overspend

7. Document every draw or payroll run

   • Record it in your bookkeeping software or a simple spreadsheet:

     DateNet ProfitDraw / SalaryTaxes WithheldRemaining in LLC2025-06-30$5,000$2,500$750$1,750

8. Revisit quarterly

   • Check actual vs. projected net profit and personal needs

   • Adjust your draw percentage or salary up/down based on cash reserves and upcoming expenses

9. Loop in your accountant

   • A CPA can fine-tune your salary vs. distributions mix, help you maximize retirement contributions, and ensure you’re minimizing your overall tax bill

For Example… let’s say you bring in $10,000 a month from clients. If you take 50% of that, which is $5,000, as your draw, then set aside 30% of that draw ($1,500) in a tax savings account, you’re left with $3,500. Next, you tuck 20% of that remainder, which is $700, into your personal savings. That leaves you with $2,800 for Mortgage/rent,bilLs,& spending money and $5,000 to reinvest back into the business.