Start with the LLC's tax classification
A disregarded single-member LLC owner commonly takes draws rather than payroll. Partners generally use distributions and may receive guaranteed payments. An owner working for an LLC taxed as an S corporation generally receives reasonable W-2 compensation before additional distributions.
Four common paths
The same legal entity can have different payment rules.
Disregarded single-member LLC
The owner commonly transfers money as an owner's draw; the draw itself does not determine taxable profit.
Partnership-taxed LLC
Members may receive distributions and, when appropriate, guaranteed payments under the operating and tax arrangements.
S corporation taxation
An owner performing services generally receives reasonable wages through payroll before additional shareholder distributions.
C corporation taxation
Working owners may receive wages; dividends and other payments follow corporate tax rules.
Keep clean records
Label every transfer and keep personal spending out of the company account.
Book each transfer consistently as payroll, draw, distribution, guaranteed payment, reimbursement or loan payment. Good records support tax reporting and reinforce the separation between the owner and the LLC.
Plan for cash flow
A permitted distribution is not always a wise distribution.
Before taking money out, account for operating expenses, taxes, debt obligations, reserves and any restrictions in the operating agreement or loan documents.
Choose a business bank account for the LLC.
Review the practical banking criteria and Chris's preferred options.