You transfer money from your LLC's business bank account to your personal account whenever needed. This isn't a salary or wage — it's simply taking out your share of the company's profits and equity. The amount can vary based on business performance and personal needs.
Tax treatment: Owner's draws aren't taxed when taken since you've already paid taxes on the LLC's entire profit through pass-through taxation. In New York, you'll pay state income tax rates ranging from 4% to 10.9% on LLC profits, plus federal taxes and self-employment tax on the full profit regardless of how much you actually draw.
How to do it
Ensure your LLC has enough cash flow and retained earnings to cover the withdrawal amount
Transfer funds from your LLC business account to your personal account, clearly labeling it as an 'owner's draw'
Record the transaction in your accounting system and maintain documentation for tax purposes
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Guaranteed Payment
Guaranteed payments are fixed amounts paid to LLC members for services rendered, similar to a salary but for LLC owners. These payments are made regardless of whether the LLC is profitable and are typically outlined in your operating agreement. The payments reduce the LLC's taxable income.
Tax treatment: Guaranteed payments are deductible business expenses for the LLC and taxable income to the recipient member. In New York, you'll pay state income tax on these payments plus self-employment tax at the federal level. The LLC can deduct guaranteed payments, reducing its overall tax burden.
How to do it
Document guaranteed payment terms in your LLC operating agreement, including amount and frequency
Set up regular transfers from the LLC account to the member's personal account according to the agreed schedule
Issue a Schedule K-1 to each member receiving guaranteed payments and report payments on your tax returns
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Salary via S-Corp Election
Your LLC elects to be taxed as an S-Corporation with the IRS, allowing you to become an employee of your own company. You must pay yourself a reasonable salary subject to payroll taxes, but additional profits can be distributed without self-employment tax. This requires more complex payroll and tax compliance.
Tax treatment: Your salary is subject to regular payroll taxes and New York state income withholding. Additional distributions beyond your salary are not subject to self-employment tax, potentially saving thousands annually. New York doesn't have additional S-Corp taxes, but you must file Form CT-3-S annually.
How to do it
File Form 8832 with the IRS to elect S-Corporation tax status for your LLC
Establish payroll processing to pay yourself a reasonable salary with proper tax withholdings
Take additional compensation as distributions from remaining profits, which aren't subject to self-employment tax
New York Tax Notes for LLC Owners
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Income Tax
New York has a progressive state income tax with rates from 4% to 10.9% depending on income level. LLC owners pay New York state income tax on their share of LLC profits through pass-through taxation, regardless of the payment method chosen.
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Self-Employment Tax
New York LLC owners are subject to federal self-employment tax of 15.3% on LLC profits when using owner's draws or guaranteed payments. The S-Corp election allows you to avoid SE tax on distributions above your reasonable salary.
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Estimated Taxes
New York LLC owners must make quarterly estimated tax payments if they expect to owe $300 or more in state taxes. Federal quarterly payments are required if you expect to owe $1,000 or more. Payments are due January 15, April 15, June 15, and September 15.
Common Mistakes to Avoid
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Mixing personal and business funds by taking draws from the wrong account or using business funds for personal expenses without proper documentation
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Failing to make quarterly estimated tax payments to both New York and the IRS, resulting in penalties and interest charges
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Not properly documenting owner's draws or guaranteed payments, creating problems during tax preparation and potential IRS audits
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Over-paying yourself during lean periods or under-paying when the business is profitable, creating cash flow issues or missing growth opportunities