An owner's draw allows you to withdraw profits from your LLC at any time by simply transferring money from the business account to your personal account. This method treats you as a business owner rather than an employee, so there's no payroll processing involved. The amount you can draw is limited to the LLC's available cash flow and your ownership percentage.
Tax treatment: Owner's draws are not taxable events themselves, but you'll pay taxes on your share of the LLC's total profits regardless of how much you actually withdraw. In North Dakota, these profits are subject to state income tax rates ranging from 1.1% to 2.9% depending on your income level. You'll also owe federal self-employment taxes of 15.3% on the LLC's net earnings.
How to do it
Transfer money from your LLC's business bank account to your personal account, ensuring you have sufficient cash flow and equity in the business
Record the transaction in your accounting system as an owner's draw or distribution, not as a business expense
Set aside approximately 25-30% of your draw for federal and North Dakota state taxes, plus self-employment taxes
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Guaranteed Payment
Guaranteed payments function like a salary for LLC members who actively work in the business, providing regular compensation regardless of the LLC's profitability. These payments are made for services performed and are treated as ordinary business expenses for the LLC. Unlike owner's draws, guaranteed payments reduce the LLC's taxable income and provide more predictable cash flow for working members.
Tax treatment: Guaranteed payments are taxable income to the recipient and deductible business expenses for the LLC. Recipients pay North Dakota state income tax at rates from 1.1% to 2.9% plus federal income taxes and self-employment taxes of 15.3% on the guaranteed payment amount. The LLC can deduct these payments as ordinary business expenses, reducing the overall taxable income passed through to all members.
How to do it
Establish a written agreement in your operating agreement specifying the guaranteed payment amount, frequency, and which members will receive payments
Make regular payments to qualifying members and treat them as ordinary business expenses in your accounting records
Issue Schedule K-1 forms to recipients showing guaranteed payments separately from their share of profits, and ensure recipients make quarterly estimated tax payments
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Salary via S-Corp Election
By electing S-Corporation tax status with the IRS, your LLC can pay you a reasonable salary as a W-2 employee while distributing additional profits as distributions that aren't subject to self-employment taxes. This hybrid approach requires running payroll and paying payroll taxes on the salary portion. The salary must be reasonable for the work performed and industry standards.
Tax treatment: Your W-2 salary is subject to regular payroll taxes, North Dakota state income tax withholding, and federal income taxes. Additional profit distributions are taxed as ordinary income for federal and North Dakota purposes but are not subject to self-employment taxes. North Dakota follows federal S-Corp tax treatment, so distributions pass through to your personal tax return without additional entity-level taxation.
How to do it
File Form 2553 with the IRS to elect S-Corporation tax status and ensure it's effective for the current tax year
Set up payroll to pay yourself a reasonable salary with proper tax withholdings, and register as an employer with North Dakota for state payroll taxes
Take additional compensation as shareholder distributions after paying your reasonable salary, and maintain proper documentation for both salary and distribution payments
North Dakota Tax Notes for LLC Owners
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Income Tax
North Dakota imposes state income tax on LLC income at graduated rates from 1.1% to 2.9%. LLC profits pass through to owners' personal tax returns and are subject to these rates based on total taxable income.
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Self-Employment Tax
North Dakota LLC owners pay federal self-employment tax of 15.3% on their share of LLC profits, but North Dakota does not impose additional state-level self-employment taxes beyond the regular income tax.
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Estimated Taxes
North Dakota LLC owners must make quarterly estimated tax payments if they expect to owe $1,000 or more in state taxes. Federal quarterly payments are required if you'll 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 using the business account for personal expenses or failing to properly document owner's draws as distributions rather than business expenses
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Not making quarterly estimated tax payments to both North Dakota and the IRS, resulting in penalties and interest charges at year-end
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Failing to maintain proper documentation for payments to owners, including the amount, date, and purpose of each draw or guaranteed payment
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Paying yourself too little and retaining excessive cash in the LLC, or conversely, taking draws that exceed your ownership percentage or the company's available cash flow