You transfer money directly from your LLC's business bank account to your personal account whenever needed. This isn't technically a salary or wage—it's simply taking money from profits you've already earned. The amount and timing are entirely at your discretion.
Tax treatment: In Indiana, owner's draws aren't subject to payroll taxes, but you'll pay self-employment tax (15.3%) on your LLC's net profits regardless of how much you actually withdraw. Indiana has a flat income tax rate of 3.23% on your LLC earnings, which you'll report on your personal state tax return.
How to do it
Set up separate business and personal bank accounts to maintain clear financial separation
Transfer funds from your LLC account to your personal account, documenting each withdrawal as an owner's draw
Track all draws in your accounting system and set aside money for quarterly estimated taxes on your LLC's total profits
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Guaranteed Payment
Guaranteed payments are predetermined amounts paid to LLC members for services rendered, regardless of the LLC's profitability. These payments are made before profit distributions and are treated similarly to wages for tax purposes. The LLC can deduct these payments as business expenses.
Tax treatment: Guaranteed payments are subject to self-employment tax (15.3%) and Indiana's 3.23% income tax rate. Unlike owner's draws, these payments reduce the LLC's taxable income since they're deductible business expenses. You'll receive a Schedule K-1 showing your guaranteed payments and profit share.
How to do it
Document guaranteed payment amounts and schedule in your LLC operating agreement
Set up payroll records and issue payments according to your predetermined schedule
Report guaranteed payments on Schedule K-1 and pay quarterly estimated taxes on both the guaranteed payments and your share of remaining profits
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Salary via S-Corp Election
By electing S-Corporation tax status, your LLC can pay you a reasonable salary subject to payroll taxes, while additional profits can be distributed as dividends that aren't subject to self-employment tax. This requires running payroll and adhering to employment tax obligations.
Tax treatment: Your salary is subject to Social Security and Medicare taxes (7.65% each for employee and employer portions), plus Indiana's 3.23% income tax and federal income tax withholding. Profit distributions beyond your salary are only subject to income taxes, not self-employment taxes, creating potential tax savings for profitable LLCs.
How to do it
File Form 2553 with the IRS to elect S-Corporation tax treatment and ensure Indiana recognizes this election
Set up payroll processing to pay yourself a reasonable salary with proper tax withholdings
Distribute additional profits as dividends after ensuring your salary meets IRS reasonableness standards for your role and industry
Indiana Tax Notes for LLC Owners
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Income Tax
Indiana imposes a flat income tax rate of 3.23% on LLC owner earnings, which applies to all payment methods. LLC income passes through to your personal Indiana tax return (Form IT-40), and you'll pay tax on your share of profits regardless of how much you actually withdraw.
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Self-Employment Tax
Indiana LLC owners must pay federal self-employment tax of 15.3% on their share of LLC profits when using owner's draws or guaranteed payments. The S-Corp election allows you to avoid SE tax on profit distributions beyond your reasonable salary.
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Estimated Taxes
Indiana LLC owners must make quarterly estimated tax payments if they expect to owe more than $1,000 in state taxes. Federal quarterly estimates are required if you'll owe more than $1,000. Due dates are 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 finances by using business accounts for personal expenses instead of taking formal owner's draws
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Failing to make quarterly estimated tax payments and facing penalties from both Indiana and the IRS at year-end
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Not properly documenting owner's draws and guaranteed payments, which can create confusion during tax preparation and potential IRS scrutiny
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Setting unreasonably low salaries with S-Corp election to avoid payroll taxes, risking IRS penalties and additional tax assessments