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 aren't subject to payroll taxes, but you'll pay self-employment tax (15.3%) on 92.35% of your share of LLC profits (the 12.4% Social Security part stops at the annual wage base), 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
2
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
3
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 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
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.
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.
Estimated Taxes
Texas does not tax this income on a personal return, so quarterly estimated payments go to the IRS only. 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 finances by using business accounts for personal expenses instead of taking proper documented draws
Failing to make quarterly estimated tax payments, resulting in penalties and interest charges from the IRS
Not properly documenting owner's draws and guaranteed payments, creating problems during tax preparation and potential IRS audits
Taking too little compensation (underpaying) which limits business growth, or too much (overpaying) which creates cash flow problems for the LLC
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
You choose the timing. Federal tax law does not limit how often an LLC owner takes a draw, although an operating agreement with more than one member may set its own rules for distributions. 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. Because Texas has no personal income tax, the estimated tax you plan your draws around is federal, though any Texas tax the LLC itself owes is a separate question. Once an S-corporation election is in effect, a regular payroll salary replaces some of the draws, and any distribution is recorded apart from the wages. Every transfer belongs in the books under the right name so the tax returns line up with it.
No. An owner's draw carries no payroll withholding, because the IRS does not treat the owner of an LLC taxed under the default rules as its employee. The federal tax that takes the place of payroll tax is self-employment tax. It is figured on your share of the net profit, drawn or not, and you usually owe it once your net earnings from self-employment reach $400 for 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. Texas has no personal income tax, so your own share of the profit is not taxed by Texas on a personal return; any Texas tax the LLC itself owes is a separate matter.
No rule fixes the figure. Start from what the LLC can spare once its bills are paid, its tax is provided for and a cash cushion is left in the account. Your tax bill follows the profit, not the draw: income tax and self-employment tax are owed on your share either way, so reserve for them first. With no personal income tax in Texas, what you hold back for your own share of the profit is federal tax. An S-corporation election adds a rule: you must be paid a reasonable salary for your work before taking distributions. What counts as reasonable turns on your duties and what similar work pays, so set it with a tax professional.
For each transfer to yourself, note when it happened, how much it was, which account paid it and whether it counts as a draw, a guaranteed payment or wages. Back each entry with the bank statement that shows it. Keep your operating agreement's terms on distributions and guaranteed payments with the file, and the payroll records too if the LLC is taxed as an S corporation. Texas does not tax your share on a personal return, yet these records still back your federal return, so ask your accountant how long to hold them. The aim is that each figure on your tax returns can be traced back to a transfer in the bank records, which is far easier when the LLC has its own account.
The election leaves your LLC as it is under state law and changes only how the IRS taxes it. You are then paid a reasonable salary through payroll, with payroll taxes on it, and the profit beyond the salary is not subject to self-employment tax. The trade-off is extra work and cost: payroll every pay period, a federal S-corporation return of its own each year, and usually an accountant to prepare it. For its own taxes, Texas does not recognize the federal S-corporation election; Texas's tax agency can tell you how it treats the business. 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. Check with Texas what, if anything, the LLC owes the state each year, since a charge that does not depend on profit still needs cash. First, check the cash: a draw is money the business no longer has for its bills. A profitable year brings tax on your share however much you drew and whenever you drew it. The operating agreement may limit distributions, and taking out more than you have put in is a point to raise with a tax professional first.
Sources
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Each entry below is a document recorded in our verified Texas sources, and each entry says what the document is. Some statutory text is read from an accurate mirror rather than from the state's own host, and those say so. Where we hold the citation but no stable public link, the citation is printed on its own rather than pointed at a guessed address.
Texas statute: Texas Business Organizations Code (LLC governance)
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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.
