You transfer money directly from your LLC's business account to your personal account whenever you need funds. This isn't technically a salary or wage, but rather a withdrawal of your ownership equity. The amount and timing are entirely at your discretion as the sole owner.
Tax treatment: Owner's draws aren't taxed when you take them since you already pay taxes on all LLC profits whether you withdraw them or not. In Illinois, you'll pay the flat 4.95% state income tax on your LLC's profits plus federal self-employment tax of 15.3% on net earnings. The draw itself doesn't create additional tax liability.
How to do it
Transfer funds from your LLC business bank account to your personal account using online banking or a check
Record the transaction in your accounting software as an owner's draw or distribution
Keep documentation of the transfer including bank statements and accounting records for tax purposes
2
Guaranteed Payment
The LLC makes predetermined payments to working members regardless of whether the business is profitable. These payments are similar to wages but are treated differently for tax purposes. The LLC deducts guaranteed payments as business expenses, reducing the overall taxable income distributed to all members.
Tax treatment: Recipients pay self-employment tax on guaranteed payments plus Illinois's 4.95% state income tax and federal income tax. The LLC deducts these payments as business expenses. Unlike owner's draws, guaranteed payments are taxable income when received, not based on overall LLC profits.
How to do it
Establish guaranteed payment amounts and schedule in your LLC operating agreement
Set up regular payroll transfers from the LLC account to the receiving member's personal account
Issue Form 1099-NEC to recipients and report payments as business deductions 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. As an owner-employee, you must pay yourself a reasonable salary subject to payroll taxes. Additional profits can be distributed as dividends, which aren't subject to self-employment tax. This creates potential tax savings for profitable LLCs.
Tax treatment: Your salary is subject to payroll taxes (15.3% total for Social Security and Medicare) and Illinois state income tax withholding. Distributions beyond your salary are taxed as regular income in Illinois at 4.95% but avoid the 15.3% self-employment tax. You must maintain proper payroll records and file additional tax forms.
How to do it
File Form 2553 with the IRS to elect S-Corporation tax status for your LLC
Set up payroll processing to pay yourself a reasonable salary with proper tax withholdings
Take additional compensation as distributions after paying required salary and payroll taxes
Illinois Tax Notes for LLC Owners
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Income Tax
Illinois imposes a flat 4.95% state income tax on all LLC owner income, including profits from owner's draws, guaranteed payments, and S-Corp distributions. This rate applies regardless of income level.
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Self-Employment Tax
Illinois LLC owners pay federal self-employment tax of 15.3% on net earnings from owner's draws and guaranteed payments. S-Corp election can help reduce this burden by limiting SE tax to salary portions only.
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Estimated Taxes
Illinois LLC owners must make quarterly estimated tax payments if they expect to owe more than $1,000 in state taxes. Federal estimated taxes are also required quarterly. Payments are due January 15, April 15, June 15, and September 15 for the previous quarter.
Common Mistakes to Avoid
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Mixing personal and business funds by using business accounts for personal expenses instead of taking formal draws
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Not paying quarterly estimated taxes to Illinois and the IRS, leading to penalties and interest charges
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Failing to document owner's draws properly in accounting records, creating problems during tax preparation and audits
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Paying yourself too little in early profitable years or too much when cash flow is tight, rather than maintaining consistent, sustainable compensation