Learn the three main methods to compensate yourself as a Connecticut LLC owner, including tax implications and step-by-step instructions for each approach.
You transfer money from your LLC's business bank account to your personal account whenever you need funds. The amount and timing are entirely up to you, as long as the LLC has sufficient cash flow. This is the simplest method and doesn't require formal payroll setup.
Tax treatment: Owner's draws are not taxable events themselves - you pay taxes on the LLC's entire profit whether you take draws or not. In Connecticut, LLC profits pass through to your personal tax return and are subject to Connecticut's income tax rates ranging from 3% to 6.99%. You'll also owe federal self-employment tax of 15.3% on the LLC's net earnings.
How to do it
Ensure your LLC operating agreement allows for owner distributions and specifies any restrictions
Transfer funds from your LLC business bank account to your personal bank account
Record the transaction in your accounting system as an owner's draw or distribution
2
Guaranteed Payment
The LLC makes regular payments to working members regardless of the company's profitability, similar to a salary but without payroll taxes. These payments are deducted as business expenses, reducing the LLC's taxable income. The remaining profits are then distributed among all members according to their ownership percentages.
Tax treatment: Guaranteed payments are treated as self-employment income and subject to Connecticut income tax and federal self-employment tax of 15.3%. The LLC can deduct guaranteed payments as business expenses. Recipients report these payments on Schedule K-1 and pay Connecticut income tax at rates from 3% to 6.99%.
How to do it
Include guaranteed payment terms in your LLC operating agreement, specifying amounts and payment schedule
Set up regular payments from the LLC bank account to the working member's personal account
Issue Form 1099-NEC to recipients of guaranteed payments and report them on the LLC's tax return
3
Salary via S-Corp Election
Your LLC elects to be taxed as an S-Corporation with the IRS. Owner-employees must receive reasonable salaries subject to payroll taxes, but additional profits can be distributed without self-employment tax. This creates potential tax savings but requires formal payroll setup and additional compliance.
Tax treatment: Salaries are subject to payroll taxes (15.3% combined employer/employee share) and Connecticut income tax withholding. Distributions above salary are not subject to self-employment tax but still face Connecticut income tax at regular rates. Connecticut does not impose additional entity-level taxes on S-Corps beyond the $250 annual tax.
How to do it
File Form 2553 with the IRS to elect S-Corporation tax status within 75 days of the election effective date
Set up payroll to pay yourself a reasonable salary with proper tax withholdings and quarterly payroll tax filings
Take additional compensation as distributions from remaining profits after paying your salary
Connecticut Tax Notes for LLC Owners
🧾
Income Tax
Connecticut imposes personal income tax on LLC profits at rates ranging from 3% to 6.99% based on income level. LLC owners report their share of profits on their Connecticut personal tax return (Form CT-1040) regardless of how much they actually withdraw from the business.
💼
Self-Employment Tax
Connecticut LLC owners are generally subject to federal self-employment tax of 15.3% on their share of the LLC's net earnings from self-employment. Connecticut does not impose a separate state-level self-employment tax, but LLC profits are subject to Connecticut income tax rates.
📅
Estimated Taxes
Connecticut LLC owners must make quarterly estimated tax payments if they expect to owe $1,000 or more in Connecticut income tax. Use Form CT-1040ES for state estimated payments and Form 1040ES for federal payments. Due dates are April 15, June 15, September 15, and January 15 of the following year.
Common Mistakes to Avoid
⚠
Mixing personal and business finances by using the LLC bank account for personal expenses instead of taking formal draws
⚠
Failing to make quarterly estimated tax payments and facing penalties from both Connecticut and the IRS
⚠
Not documenting owner draws or payments in the LLC's books, making tax preparation and business analysis difficult
⚠
Taking too little compensation (starving the business of working capital) or too much compensation (leaving insufficient funds for business operations and growth)