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.
Affiliate disclosure: We may earn a commission at no extra cost to you.
You withdraw money directly from the LLC's bank account as needed, treating it as a distribution of profits rather than wages. The amount you can draw is limited to your ownership percentage and the LLC's available cash flow. This method offers maximum flexibility since there's no set schedule or amount required.
Tax treatment: Owner's draws are not subject to payroll taxes, but you'll pay self-employment tax (15.3%) on your entire share of LLC profits, regardless of how much you actually withdraw. Texas has no state income tax, so you only pay federal income tax and self-employment tax on your LLC income.
How to do it
Ensure your LLC operating agreement allows for owner distributions and specifies how they're calculated
Transfer money from your LLC business account to your personal account, documenting the transaction as an owner's draw
Track all draws throughout the year for tax reporting and maintain detailed records of the amounts and dates
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Guaranteed Payment
The LLC makes regular payments to specific members for services rendered, regardless of whether the business is profitable that period. These payments are treated as business expenses for the LLC and must be reasonable for the services provided. Guaranteed payments are typically used when members have different roles or time commitments to the business.
Tax treatment: Guaranteed payments are subject to self-employment tax (15.3%) and are deductible as a business expense for the LLC. The receiving member pays federal income tax on the payments, with no Texas state income tax. The LLC issues a Schedule K-1 showing both guaranteed payments and any additional profit distributions.
How to do it
Document guaranteed payment arrangements in your LLC operating agreement, specifying amounts, frequency, and services provided
Set up regular payment schedule through your business payroll system or accounting software
Issue Schedule K-1 forms to all members showing guaranteed payments and profit/loss allocations for tax reporting
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Salary via S-Corp Election
Your LLC elects to be taxed as an S-Corporation, requiring owner-employees to receive reasonable salaries subject to payroll taxes. Additional profits can be distributed as dividends, which aren't subject to self-employment tax. This method requires more administrative work but can provide significant tax savings for profitable businesses.
Tax treatment: Salary portions are subject to payroll taxes (15.3% split between employer and employee), while dividend distributions avoid self-employment tax entirely. Texas has no state income tax, so you only pay federal taxes on both salary and distributions. The LLC must run payroll and file additional tax forms as an S-Corp.
How to do it
File Form 2553 with the IRS to elect S-Corporation tax treatment for your LLC within the required timeframe
Set up payroll to pay yourself a reasonable salary for your role, withholding appropriate federal taxes and unemployment insurance
Distribute additional profits as dividends to members based on ownership percentages, avoiding self-employment tax on these amounts
Texas Tax Notes for LLC Owners
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Income Tax
Texas has no state income tax, so LLC owners only pay federal income tax on their share of LLC profits and any guaranteed payments or salary received.
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Self-Employment Tax
Texas LLC owners must pay federal self-employment tax (15.3%) on their share of LLC profits when using owner's draws or guaranteed payments, but can reduce this through S-Corp election salary/distribution strategies.
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Estimated Taxes
Texas LLC owners must make quarterly estimated tax payments to the IRS for both income tax and self-employment tax since no taxes are withheld from LLC distributions. Payments are due 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 documented draws
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Failing to make quarterly estimated tax payments, resulting in penalties and interest charges from the IRS
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Not properly documenting owner's draws and guaranteed payments, creating problems during tax preparation and potential IRS audits
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Taking too little compensation (underpaying) which limits business growth, or too much (overpaying) which creates cash flow problems for the LLC
Frequently Asked Questions
You can withdraw money from your Texas LLC as frequently as you need—weekly, monthly, quarterly, or irregularly—through owner's draws, provided your LLC maintains adequate cash flow and your operating agreement permits distributions. Texas doesn't impose withdrawal frequency restrictions through the Texas Business & Commerce Code or the Texas Secretary of State's Office, giving you complete flexibility.
However, this flexibility carries practical responsibilities. Each draw reduces your LLC's retained earnings and available capital for operations, potentially limiting your ability to cover expenses, pay employees, or fund growth. You must also track every withdrawal meticulously for IRS Schedule C reporting and self-employment tax calculations, as inconsistent draw patterns can trigger audit flags with the Internal Revenue Service.
The Texas Comptroller of Public Accounts requires that your LLC maintain separate accounting records documenting all owner distributions for franchise tax compliance, even though Texas has no state income tax.
Your next step: Review your LLC's operating agreement for any draw restrictions, then establish a sustainable monthly draw amount that maintains adequate business reserves while meeting your personal income needs.
No, owner's draws themselves are not subject to payroll taxes like Social Security and Medicare withholdings. However, you will owe self-employment tax (15.3%) on your entire share of LLC profits when you file your annual tax return with the IRS, regardless of how much you actually withdrew during the year. This means if your Texas LLC generates $80,000 in profit and you only drew $40,000, you still owe self-employment tax on the full $80,000. You'll calculate this liability on Schedule SE (Form 1040) when filing your federal return. The practical implication: plan to set aside approximately 15.3% of your net profits quarterly to avoid owing a large tax bill in April. Consider making quarterly estimated tax payments to the IRS to avoid penalties. Contact the Texas Secretary of State or consult a CPA to ensure your LLC's profit allocation aligns with your ownership percentage.
Your Texas LLC salary should balance personal needs against business sustainability, typically ranging from 25–50% of net profits after operating expenses and taxes. The Texas Secretary of State doesn't mandate minimum owner distributions, giving you flexibility, but the IRS requires reasonable compensation if your LLC is taxed as an S-corporation—generally defined as what other businesses pay for similar roles. Calculate your target by first setting aside 25–30% of projected annual income for federal and state self-employment taxes (Texas has no state income tax, reducing your burden), then reserve funds for payroll, inventory, equipment maintenance, and a 3–6 month operating cushion. This approach protects your business during slow months while ensuring consistent personal income. To implement this, create a distribution schedule in your LLC operating agreement and document monthly draws through separate owner draw accounts. Contact the Texas Comptroller's office if you're unsure about estimated quarterly tax payments on your draws.
Maintain detailed records of all owner's draws including dates, amounts, bank transfer documentation, and business purpose for each payment. Texas requires you to document draws in your LLC operating agreement and maintain them for at least three years for potential IRS audits. Keep separate business and personal bank accounts—the Texas Secretary of State expects this separation to protect your liability shield. Record every draw in your accounting software or ledger, noting whether it's a guaranteed payment or proportional distribution based on your membership percentage. For Texas tax purposes, the Comptroller of Public Accounts requires documentation supporting your draw amounts when filing your franchise tax report. Save all bank statements, transfer receipts, and cancelled checks. This documentation proves to the IRS that draws match your LLC's profit distributions and prevents misclassification as wages requiring payroll tax withholding. Before your next draw, photograph bank transfer confirmations and retain them digitally in a dedicated folder for your CPA or tax preparer.
S-Corp election typically becomes beneficial when your Texas LLC generates over $60,000–$80,000 in annual profits. By electing S-Corp status with the IRS using Form 2553, you split income between W-2 wages (subject to payroll taxes) and distributions (avoiding the 15.3% self-employment tax). For a Texas LLC earning $100,000 annually, this could save $3,000–$5,000 yearly in self-employment taxes alone. However, S-Corp election requires filing annual Texas franchise tax reports, quarterly payroll tax deposits with the IRS, and W-2 preparation through a payroll processor like ADP or Guidepoint—adding $1,500–$3,000 in annual compliance costs. The Texas Comptroller of Public Accounts requires Form 05-102-C for franchise tax reporting. This election only makes financial sense when tax savings exceed administrative expenses. Schedule a consultation with a CPA experienced in Texas LLCs to run your specific profit projections and determine if S-Corp election's benefits outweigh its compliance burden for your business structure.
Yes, you can take owner's draws from your Texas LLC before it becomes profitable, provided your business bank account has sufficient cash available. However, the Texas Secretary of State and IRS treat these draws as reductions to your capital account, which creates two critical complications: first, excessive draws may eliminate your basis for deducting future business losses on your personal tax return (Form 1040, Schedule C), and second, if you have co-members, disproportionate draws can trigger disagreements over ownership percentages and voting rights outlined in your Operating Agreement. The practical impact is that you may owe taxes on future profits while simultaneously losing deductions for current losses. Before taking draws, file Form 8832 with the IRS if you want your Texas LLC taxed as an S-Corporation—this structure allows reasonable salary payments separate from draws, protecting your loss deductions. Consult a Texas CPA immediately to model your specific draw strategy against projected profitability.
