“How do I pay myself?” seems like it should be a simple question, right? But a lot of business owners find themselves confused about how to actually do this. And getting the answer right is important because the way you pay yourself affects your taxes, your cash flow, and your peace of mind.
The reason it feels confusing? Because there’s no single answer. The right way to pay yourself depends on how your business is structured. So let’s break that down.
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First: Know Your Business Structure
The way you pay yourself depends on whether you’re:
- A sole proprietor, partnership, or LLC (not taxed as an S-Corp)
- An S-Corp owner (or C-Corp, though that’s less common for smaller businesses)
Each one has different rules. Let’s walk through both.
Option 1: The Owner's Draw
If you’re a sole proprietor or LLC (and not electing S-Corp status), you pay yourself through something called an owner’s draw.
What does that mean? You’re literally just taking money out of your business for personal use. It’s not payroll. It’s not a business deduction. It’s you paying yourself from your profits.
A few things to keep in mind:
- Pick a rhythm. Pay yourself weekly, biweekly, monthly, whatever works. Just be consistent. Random transfers make your books messy and your budget unpredictable.
- Save for taxes. When you take an owner’s draw, nothing gets withheld. That means you’re responsible for setting aside money for quarterly or year-end tax payments. Don’t skip this.
Being intentional about when and how much you draw keeps your finances clearer and less stressful.
Option 2: Payroll (For S-Corp Owners)
If your business is taxed as an S-Corporation, the rules change. You have to pay yourself through payroll.
That means you get an actual paycheck, taxes get withheld, and your business acts like an employer (because it is).
You’ll also hear the term reasonable compensation thrown around. Basically, you need to pay yourself what someone doing your job would reasonably earn. It’s a compliance thing.
Bottom line: If you’re an S-Corp, payroll isn’t optional.
The Takeaway
However you pay yourself, the goal is the same: be intentional.
Not random transfers when you feel like it. Not “whatever’s left.” Pay yourself with a plan so your books, your taxes, and your peace of mind all stay in sync.
Have Another Question?
This is part of my Ask This Bookkeeper Anything series, where I answer real questions from business owners about bookkeeping and money stuff.
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