An owner's draw is when you transfer money from your LLC's business bank account to your personal account. You're essentially taking a portion of the profits you've already earned. The draw isn't considered a business expense and doesn't reduce your LLC's taxable income.
Tax treatment: Owner's draws aren't subject to payroll taxes, but the entire profit of your LLC (regardless of how much you draw) is subject to self-employment tax of 15.3%. In Minnesota, you'll also pay state income tax on your LLC profits at rates ranging from 5.35% to 9.85% depending on your income level.
How to do it
Open a separate business bank account for your Minnesota LLC to maintain clear separation of business and personal funds
Transfer money from your LLC business account to your personal account, documenting each draw with the date, amount, and purpose
Set aside part of each draw for federal self-employment tax, federal income tax, and Minnesota state income tax
2
Guaranteed Payment
A guaranteed payment is a predetermined amount paid to an LLC member for services rendered to the business, regardless of whether the LLC is profitable. These payments are treated as business expenses and reduce the LLC's taxable income. They're similar to a salary but don't require payroll tax withholding.
Tax treatment: Guaranteed payments are subject to self-employment tax of 15.3% for the recipient and are deductible as business expenses for the LLC. In Minnesota, the recipient pays state income tax on guaranteed payments at rates from 5.35% to 9.85%, and the payments reduce the LLC's overall taxable income.
How to do it
Document the guaranteed payment arrangement in your LLC operating agreement, specifying the amount and payment schedule
Make regular payments to the member and issue a Schedule K-1 at year-end showing the guaranteed payment amount
The receiving member should make quarterly estimated tax payments to cover self-employment tax and Minnesota state income tax on the guaranteed payments
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Salary via S-Corp Election
Your LLC elects to be taxed as an S-Corporation by filing Form 2553 with the IRS. As an S-Corp, you become an employee and must pay yourself a reasonable salary subject to payroll taxes. Any additional profits can be distributed as dividends, which aren't subject to self-employment tax.
Tax treatment: Your salary is subject to payroll taxes (15.3% total for Social Security and Medicare), but dividend distributions aren't subject to self-employment tax. In Minnesota, both salary and dividends are subject to state income tax at rates from 5.35% to 9.85%. The payroll tax savings on dividends can be significant for higher earners.
How to do it
File Form 2553 with the IRS to elect S-Corp tax status for your Minnesota LLC (must be filed by March 15th for current year election)
Set up payroll to pay yourself a reasonable salary, withholding federal and state income taxes plus payroll taxes
Take additional profits as dividend distributions throughout the year, which avoid self-employment tax but are still subject to Minnesota income tax
Minnesota Tax Notes for LLC Owners
Income Tax
Minnesota has a progressive income tax system with rates ranging from 5.35% to 9.85% for 2026. LLC owners pay Minnesota state income tax on their share of LLC profits, regardless of the payment method used.
Self-Employment Tax
Minnesota LLC owners are subject to federal self-employment tax of 15.3% on their share of LLC profits when using owner's draws or guaranteed payments. This tax applies to the entire profit amount, not just what you withdraw.
Estimated Taxes
If Minnesota taxes this income, it sets its own rules for estimated payments, so check the current threshold and due dates with Minnesota's tax agency. Because nothing is withheld from a draw, you generally make federal estimated payments with Form 1040-ES; the IRS sets four due dates a year and the threshold for owing them, both listed in the form's instructions.
Common Mistakes to Avoid
Mixing personal and business money in one account, which complicates bookkeeping and tax reporting and can weaken the separation between you and the LLC
Failing to make quarterly estimated tax payments and facing penalties from both the IRS and Minnesota Department of Revenue
Not properly documenting owner's draws or guaranteed payments, making it difficult to track compensation for tax purposes
Either paying yourself too much (risking cash flow problems) or too little (failing to account for the value of your work and time)
This guide is general information, not legal or tax advice, and reading it does not create an attorney-client relationship. It reports what each state publishes about filing deadlines, fees, and the consequences of missing them, with the sources this page cites. It cannot tell you what your own company owes: the date turns on when and where you formed, states change these rules between our reviews, and in several states an entity-level tax falls due in a year when no report does. Confirm your own dates with the filing office named on this page before you rely on one here, because missing a deadline can cost the company its good standing or, in many states, its existence.
Frequently Asked Questions
As often as the business can afford it. The IRS has no rule on how often you take an owner's draw, and in a multi-member LLC the operating agreement may say when distributions are made. Leave room for Minnesota income tax too: Minnesota taxes your share of the profit on your personal return at rates from 5.35% to 9.85% for 2026, and its tax agency sets its own rules for estimated payments. Some owners take a fixed amount on a set day each month; others wait until the quarter's figures are in. Either way, check the account first so the bills and the tax on the profit can still be paid. Guaranteed payments to a member are whatever the members have agreed, and an S-corporation salary is paid through payroll on set dates. Keep each kind of payment labeled separately in the books so your returns match the money that moved.
No. Payroll taxes apply to wages, and a draw from a single-member LLC or an LLC taxed as a partnership is not wages, so none are withheld. What you owe instead is self-employment tax, worked out on Schedule SE from your share of the LLC's net profit for the year, not from the amount you drew. On the state side, your share of the profit is also taxed on your Minnesota return at rates from 5.35% to 9.85% for 2026, and Minnesota's tax agency can tell you whether it wants estimated payments during the year. Because nothing is withheld, most owners make quarterly estimated payments to the IRS. If the LLC has elected S-corporation treatment, you are paid wages through payroll, and those wages do carry payroll taxes.
There is no set amount for an owner's draw. It depends on what the business can spare after its bills, the taxes on its profit and the cash it needs to keep. Drawing less does not lower your tax. Income tax and self-employment tax are figured on your share of the profit, so hold back enough to pay them. With an S-corporation election in place, part of what you take has to be a reasonable salary paid through payroll. How much is reasonable depends on your role and your industry, and a tax professional can help you set it. Your tax reserve should cover Minnesota income tax as well, which falls on your share of the profit at rates from 5.35% to 9.85% for 2026. Minnesota's Annual Renewal is filed with the Minnesota Secretary of State every year, whether or not the LLC made a profit.
Log each payment you take from the LLC with its date and amount, the account it left, and what kind of payment it was: a draw, a guaranteed payment or wages. Alongside that record, keep the bank statements, the sections of the operating agreement that govern distributions and guaranteed payments, and, for an LLC taxed as an S corporation, every payroll record. A separate business bank account makes all of this simpler, because every payment to you then shows up as one clear transfer. Ask your accountant how long to keep them for federal and Minnesota tax purposes. Keep a copy of each Annual Renewal the LLC files with the Minnesota Secretary of State in the same place.
An S-corporation election changes how the IRS taxes the LLC, not the LLC itself. Once it is in effect, you are paid a reasonable salary through payroll, which carries payroll taxes, and profit you take beyond that salary is not subject to self-employment tax. That benefit comes with overhead: a payroll to run, an extra federal return for the S corporation and the cost of help with both. Minnesota recognizes a federal S-corporation election for state tax purposes. That does not mean it taxes the business the same way the IRS does, so check Minnesota's own treatment before you elect. Whether it pays off for you is a question of your numbers rather than a rule of thumb, and it is worth putting to a tax professional before Form 2553 goes to the IRS.
You can, as far as tax law goes. Early draws are generally treated as giving back money you contributed rather than as income in themselves. Before taking anything, make sure the LLC can still pay what it owes in the coming months. The Annual Renewal still has to be filed with the Minnesota Secretary of State every year, profit or not. If the year ends in profit after all, tax is owed on your share of that profit regardless of the timing of your draws. Check your operating agreement for any rules on distributions, and talk to a tax professional before you take out more than you contributed.
Sources
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Edmond Hui is a software engineer and serial entrepreneur based in New York who has founded multiple online businesses across e-commerce, media, and information publishing. Before transitioning into tech, he spent years as a commercial real estate professional closing deals totaling over 100,000 square feet, giving him firsthand experience with business formation and entity structuring. He built MyStateLLC to provide the free, state-specific LLC guidance he wished existed when forming his own companies.
