You transfer money from your business bank account to your personal account as needed. This represents your share of the LLC's profits rather than a traditional salary. The amount can vary based on business performance and your personal financial needs.
Tax treatment: Draws are not taxed at the time of withdrawal since you already pay taxes on the LLC's entire profit on your personal return. In Maryland, you'll pay state income tax at rates from 2% to 5.75% plus federal self-employment tax of 15.3% on the LLC's net earnings. No payroll taxes are withheld from draws.
How to do it
Determine how much profit is available for distribution based on your LLC's financial performance
Transfer the desired amount from your business bank account to your personal account
Record the transaction in your accounting system as an owner's draw or distribution
2
Guaranteed Payment
The LLC pays you a predetermined amount each month for your services, similar to a salary but without payroll tax withholdings. These payments are made regardless of whether the LLC is profitable. Guaranteed payments are deductible business expenses for the LLC.
Tax treatment: You'll receive a Schedule K-1 showing your guaranteed payments as income subject to both Maryland income tax and federal self-employment tax. Maryland taxes this income at rates from 2% to 5.75%. You're responsible for paying estimated quarterly taxes since no taxes are withheld from guaranteed payments.
How to do it
Establish the guaranteed payment amount in your operating agreement or through member consent
Set up recurring monthly transfers from the business account for the agreed-upon amount
Track these payments separately in your books as guaranteed payments to partners
3
Salary via S-Corp Election
Your LLC elects S-Corporation tax treatment with the IRS, allowing you to become an employee of your own business. You receive a regular salary subject to payroll taxes, while additional profits can be distributed as dividends that avoid self-employment tax. You must pay yourself a reasonable salary for your work.
Tax treatment: Your salary is subject to Maryland income tax, federal income tax, and payroll taxes (Social Security and Medicare). Additional distributions are taxed as capital gains in Maryland at the same rates as ordinary income (2% to 5.75%) but avoid the 15.3% self-employment tax. This can result in significant tax savings for profitable LLCs.
How to do it
File Form 2553 with the IRS to elect S-Corporation tax treatment for your LLC
Set up payroll processing to pay yourself a reasonable salary with proper tax withholdings
Distribute additional profits as shareholder distributions after paying your salary
Maryland Tax Notes for LLC Owners
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Income Tax
Maryland imposes state income tax on LLC owners at rates ranging from 2% to 5.75% on taxable income over $3,000, with local county taxes adding an additional 1.25% to 3.2% depending on your county.
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Self-Employment Tax
Maryland LLC owners pay federal self-employment tax of 15.3% (12.4% Social Security + 2.9% Medicare) on net earnings from the LLC, but Maryland does not impose additional state self-employment tax.
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Estimated Taxes
Maryland LLC owners must make quarterly estimated tax payments if they expect to owe more than $500 in state taxes, due on the same dates as federal payments (January 15, April 15, June 15, and September 15).
Common Mistakes to Avoid
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Mixing personal and business finances by using business accounts for personal expenses instead of taking proper draws
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Failing to make quarterly estimated tax payments to Maryland and the IRS, resulting in penalties and interest charges
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Not documenting owner draws and payments in accounting records, creating problems during tax preparation and potential audits
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Over-paying yourself when the business needs cash for operations or under-paying yourself below market rates when electing S-Corp status