How To Pay Yourself As An LLC In 2025 (TAX-EFFICIENTLY)

You own an LLC or you're setting one up right now and you want to know how to pay yourself properly, how to stay out of harm's way, how to save some taxes when you do it. Well, we're going to answer it right here. My name is Mark Kohler. I'm a CPA attorney, best selling author, and host a podcast and YouTube channel specifically for Main street business owners. I know the answer to this. We've helped thousands of LLC owners. Now the interesting part here is that you've probably already paid yourself. You're just hoping you did it right or maybe I should do it different moving forward. And that's okay. I want to assure you that if you have an llc, you have not made an S election. Maybe you have a business bank account already, maybe you don't, that's okay too. I want you to get this thing legit and do it right moving forward. But if you already have a small business in an LLC and you're making money and you've taken the profit, it's okay. It's called a draw. You have income, you have expenses, you take it out of the bank account or you're co mingling in your personal bank account. You're not going to save taxes with an llc, but it's not going to cost you if you pay yourself incorrectly. Now, there are some ways to do it better and to save taxes as you make more money. But let's stay with level one and I want to go to the whiteboard because this will help make a lot of sense. Now, how I teach this topic is with what I call the trifecta, bringing it all together. If I just answer your questions in a tunnel on your llc, sometimes they don't make sense. So let's look at it. So here's how the trifecta works. Down here is going to be, let's say your 1040 tax return. All of your money flows down into your tax return. You have to file every year. Now, also for legal purposes, you might have a revocable living trust topic for another day. Now with the trifecta, we're going to put your ordinary income or the operations of a business on the left side and your assets on the right side. So over here might be a rental property with an LLC, or you might have your 401k or an IRA, don't worry about that. You may even have your personal home or some life insurance or something like that. Again, this topic is for another day. But on the left side, this is where your side hustle or business is. And you might have a day job, but if you have that little side hustle, llc, we're going to put it right here. And this LLC should have its own bank account. Now again, if it doesn't, it's all right, but you're going to be serving yourself a lot better for asset protection and tax planning. When you get an LLC bank account, it should have its own electronic identification number. Ein, you should have a corporate book, minutes, all these basics. Now I know some of you may went on a website and set it up for 50 bucks. You really don't have a full LLC. We help clients get it done right and get all the pieces and parts. Again, we can cross that bridge when we come to it. But this LLC is, is a structure. It's an entity, it's not a business. Your business is mowing lawns or selling real estate or selling a product online or being an influencer or whatever. That is the business. The LLC is just the shell. So at the end of the year, what's going to happen on your tax return is you're going to claim all the money you made. Whether you got a 1099 or not. Someone paid you in cash, fine, you still claim it, and then you take all the write offs you can. I got plenty of videos on this, writing off auto and electronics and home office and the kids and travel and dining, all these goodies. But whatever you net, this is your net. It's going to come down into your 1040 tax return. And the form you do this all on is called a schedule C. So back to the point, when you pay yourself, it's just like you're taking profit. You can call it profit, you can call it a draw, you could call it a distribution, whatever the hell you call it, it's just taking money out of your business through your llc. Now this is the down and dirty, level one. And again, you didn't do anything wrong if you did it that way. And you're just going to report this all on that schedule C tax return at the beginning of next year for 2024 or whatever year you're reporting on. Okay, now let's talk about level two, where you want to go with this. And there is a level three. This is going to be the good stuff. Level two is treating the LLC the way it should be treated, as a business. So you have that structure, but now you've got that ein, you've got all the corporate books you're supposed to have and you've got a bank account for this LLC. And you're also learning about maybe QuickBooks or some sort of bookkeeping. And you're going to be tracking all of those income and expenses properly, a little better. People, good bookkeeping saves you money because you're going to be at Costco or you're going to be at a store, at a restaurant and you're like, oh, oh, that's a business write off. And then you just pay for it personally. So what I want to encourage you to do is when you open this bank account for your llc, have a debit card for that, and maybe you've got a credit card just for business. That's cool. You don't have to have the business name on it, but you've got a credit card dedicated to your business and you have a debit card tied to this bank account. Use it wherever you go that's related to your business at the Apple Store, Best Buy, Dining, anything like that. You want to use your business card to pay for it. It makes your bookkeeping easier. So level two is you're using this LLC more efficiently. You're getting organized. And guess what happens when you're organized? You start making more money. So now we can go to level three. Now, before I go to level three, let me say I'm just covering the general stuff here, the basic topics. It just helps us make sense. Then we can dive in where we need to to get some more learning. But I've got tons of videos and podcasts on this very topic. I also have a law firm, this is extremely affordable, that can help you get some of these pieces and parts done. And a network of accountants, these Main street tax pros, these, they're all over the country that follow me and get trained on how to help small business owners. So I got you. Just subscribe below, continue to follow and we will help you succeed here with all of this tax and legal mumbo jumbo. It's not that hard. And it can be affordable and simple and save you so much more freaking money than you're already paying out. The links are organized very nicely in the description below. Okay, now level three. Level three is where you start to make money. Over 30,000 a year, 40,000 a year, 50,000 a year, that's profit. So if your take home is around three to four grand a month, okay, now your taxes are going to another level. So let's assume, let's maybe you're bringing in 60 grand and you've got 20 grand in expenses. So 20k expenses and you're going to net 40 grand. Okay, congratulations. Call your mom. But the first tax you're going to pay is called self employment tax and it's right at the bottom of that schedule C we just talked about. This is called fica. What the fica. We hate this F word. This is the worst F word. FICA. We don't like that. 15.3%. So you're going to pay six grand in tax before you even pay federal and state income tax. This adds up fast. So level three, we're going to transition this LLC to an S corporation. You're going to keep the same name, same tax ID number, same bank account, but we're going to change the way it's taxed at the IRS by converting it to an S corp. And it's super expensive. We charge 250 bucks. So easy, so simple. But accountants screw this up all the time and they're like, well, you don't make enough money to be an S corp, damn it. If you're making more than 40 or 50 grand, you're a perfect candidate for an S corp. But I've been teaching this for 25 years and I've got all the articles and the blogs and the books to back me up on this. So when that time comes and you start making more money, I want you to call one of our tax pros, get on a call with one of our lawyers. You're going to hear me in other videos talk about this. And I've got a whole other video on how you pay yourself as an S corporation. But you want to make that transition to the S Corp and have that phone call and the link to that S corporation video should be in the description below as well. But if you're subscribed, you're going to see it anyway. With all that said, back to having an llc. People, you are living the American dream. This is your small business. The LLC is your structure. I want you to love it. The LLC is going to help open up more doors for you. You're going to start dipping your toe in this entrepreneurship and it doesn't mean you have to quit your day job. Maybe do, maybe you don't. 40 million Americans now have a side hustle and they have a LLC to make that happen. So use it, respect it, do it properly and it'll save you taxes in so many ways. Now finally, I have also a 30 point ultimate tax strategy guide down below that you can download and get on my weekly newsletter with more tips and strategies. And if you're a tax advis in any way, shape or form, a bookkeeper, enrolled agent, a cpa, a lawyer. And you want to learn some real street smart tax strategies, please check out a demo on my tax certification program. It is unbelievable. It's affordable and it really works. I want to help you become a real advisor, everybody. Thank you for watching this and keep living that American dream.