How To Pay Yourself as a Business Owner: A Complete Guide 

You’ve built your business — now it’s time to decide how to pay yourself. It sounds simple, but choosing the right approach can be one of the most complex parts of running a company.

Unlike traditional employees, business owners must balance personal income with business needs, taxes, and growth goals. How you pay yourself impacts cash flow, tax obligations, and even how lenders or investors view your business.

Learning how to pay yourself as a business owner is about more than just cutting yourself a check — it’s selecting a method that fits your structure, stays compliant, and supports both your personal and business success.

Paying Yourself as a Business Owner: Key Differences Between a Salary and Owner’s Draw

Business owners generally have two ways to pay themselves, through a set salary or an owner’s draw, or a combination of both. Each method affects your taxes and records in its own way. What works best will depend on how your business is set up and what you need financially.

A salary offers stability. You earn the same amount on a regular schedule, and it keeps a clean divide between business and personal funds. That separation makes handling payroll and taxes much easier. An owner’s draw works differently. It gives you freedom to take money out whenever needed, provided the business has enough profit to cover it.

Understanding the differences between a salary and an owner’s draw helps you choose the best way to pay yourself as a business owner while keeping your finances organized.

What’s a Salary?

A salary is a fixed payment you receive on a regular schedule, just like any employee. When you choose this approach to business owner compensation, your company runs payroll, withholds income and employment taxes, and reports those payments to the IRS.

Paying yourself a salary is often required if you operate as an S Corporation, C Corporation, or a Limited Liability Company (LLC) taxed as a corporation, since you’re considered both an employee and owner. This method creates a predictable income and helps separate personal and business finances, which many consider the best way to pay yourself as a business owner.

In addition to IRS requirements for payroll and tax reporting, there are federal and state labor laws — such as the Fair Labor Standards Act (FLSA) — that may affect how salaries are structured and paid.

Understanding where a salary fits in the owner’s draw vs. salary decision helps ensure your pay structure stays compliant and consistent with your business goals.

What’s an Owner’s Draw?

An owner’s draw is when business owners take money from company profits instead of a fixed paycheck. Taxes aren’t withheld at the time of withdrawal, so you’ll pay them when filing your return. This method is common for pass-through entities like sole proprietorships, partnerships, and LLCs. S Corp owners usually take a salary plus distributions, while C Corp owners use salaries and taxable dividends.

Can You Take a Salary and an Owner’s Draw at the Same Time?

In some cases, yes — but it depends on your business structure.

If your company is organized as an S Corporation, you can take both a salary and an owner’s draw (technically a shareholder distribution). You’ll need to pay yourself a reasonable salary first, which covers payroll taxes, and then you can take additional distributions from remaining profits. What counts as “reasonable” depends on factors like industry standards, your role, and company size. The IRS provides guidelines on reasonable compensation for S Corporation owners, and you can also reference salary data from sources like the IRS, U.S. Bureau of Labor Statistics, Glassdoor, or industry-specific reports to benchmark your pay.

Sole proprietors and partners typically can’t do both a salary and owner’s draw since they aren’t considered employees.

For small business owners, the key is to understand your business structure and follow IRS guidelines so your pay stays compliant. Balancing salary and profit payments helps you take home what you’ve earned while keeping your tax filings clean.

Pros and Cons of the Owner’s Draw vs. a Salary: How To Choose

Owning a business means you have choices when it comes to paying yourself. You might take a regular paycheck, pull from profits, or combine both. Each option has its ups and downs, and what works best depends on your business setup, cash flow, and tax picture. Understanding the differences helps you choose a method that fits your business and keeps your pay steady.

Here’s a quick side-by-side look to help you decide which approach makes the most sense for your situation.

Choosing between a salary and an owner’s draw isn’t one-size-fits-all. Review your entity type, cash flow needs, and tax strategy — or consult a professional — to find the best way to pay yourself as a business owner. For more details, explore Paychex’s explanation of owner’s draws.

How To Pay Yourself by Business Structure

The way you pay yourself depends on how your business is set up. Each structure comes with its own rules for taxes, payroll, and compensation. Understanding these differences helps you decide how to pay yourself as a business owner in a way that’s both compliant and financially smart.

Here’s a quick overview of how different business types handle payments to their owners:

Sole Proprietor

If you operate as a sole proprietor, you and your business are legally the same entity, which means there’s no separate payroll system or corporate structure. Instead of taking a traditional paycheck, you’ll pay yourself by withdrawing money from your business profits as needed.

Here’s what that process typically looks like:

• Withdraw funds from business profits using cash, check, or transfer from your business account.
• Track each withdrawal carefully in your accounting records to keep personal and business finances separate.
• Set aside money for taxes since no income or self-employment taxes are withheld automatically.

Since these payments aren’t processed through payroll, you’ll report them on your personal tax return and make estimated tax payments throughout the year. Understanding how to pay yourself as a business owner under this structure helps you stay compliant and organized.

Partnership

In a partnership, two or more people own the business together and split the profits based on their agreement. Because partners aren’t employees, they don’t receive a regular paycheck. Instead, they take their share of the profits or guaranteed payments as outlined in the partnership terms.

Here’s how paying yourself as a business owner typically works in a partnership:

• Take distributions based on your share of the profits, as outlined in the partnership agreement.
• Record guaranteed payments if you receive fixed compensation for specific work or services, regardless of profit levels.
• Plan for taxes by setting aside funds for income and self-employment taxes since these payments aren’t withheld automatically.

When deciding how to pay yourself as a business owner, it’s essential to follow your partnership agreement closely and maintain accurate records of distributions and guaranteed payments. Clear documentation helps you stay compliant and makes it easier to track how you pay yourself from your business each year.

Limited Liability Company (LLC)

A Limited Liability Company (LLC) gives owners flexibility in how they pay themselves and how the business is taxed. Depending on the tax election, an LLC can operate as a sole proprietorship, a partnership, or a corporation. Most single-member LLCs take draws from profits, while multi-member LLCs pay distributions based on ownership share. If the LLC elects to be taxed as a corporation, owners who work in the business must receive reasonable salaries through payroll.

Keep these points in mind when paying yourself:

• Follow Your Tax Election: Your payment method — draw, distribution, or salary — depends on how the LLC is taxed.
• Keep Business and Personal Funds Separate: This protects your liability shield and keeps records clean.
• Plan for Taxes: Draws and distributions don’t include automatic withholding, while salaries do.

Understanding how to pay yourself as a business owner through an LLC helps you stay compliant and flexible as your business grows.

S Corp

An S Corporation is a tax election that lets profits and losses pass through to shareholders while avoiding double taxation. If you work in the business, the IRS requires you to take a reasonable salary through payroll — this portion is subject to employment taxes. You can then take distributions from remaining profits, which aren’t subject to payroll tax.

When paying yourself from an S Corporation:

• Run Payroll for Your Salary: It must be reasonable for the work you do.
• Take Distributions Carefully: They’re only allowed after the business covers expenses and payroll obligations.
• Keep Good Records: Separate wages and distributions for clear bookkeeping and tax reporting.

Knowing how to pay yourself from your business as an S Corp owner helps balance steady income with tax efficiency and keeps you within IRS rules.

C Corp

A C Corporation is a separate legal entity from its owners, meaning the business — not the individual — earns profits and pays taxes. As an owner who works in the business, you’re considered an employee and must pay yourself a salary through the company’s payroll system. Income and employment taxes are withheld from each paycheck, and your corporation deducts those wages as a business expense. You may also receive dividends from after-tax profits, though those are taxed separately at the shareholder level.

When paying yourself as a business owner of a C Corp, remember:

• Run Payroll Properly: Owners who work in the business must take a reasonable salary.
• Plan for Double Taxation: Corporate profits and shareholder dividends are both taxed.
• Keep Corporate Records Accurate: It is vital to track salaries and dividends separately.

Understanding how to pay yourself as a business owner under a C Corp structure ensures IRS compliance, helps you balance regular income with long-term profit distribution, and makes tax planning more predictable and transparent.

How Much Should You Pay Yourself as a Business Owner?

Determining how much to pay yourself as a business owner takes more than picking a number — it requires balancing your personal financial needs with your company’s health. Your pay should come from your business’s net profit, ensuring that operating expenses, taxes, and debt obligations are covered first. Paying yourself responsibly helps maintain stability while still rewarding the work and risk you’ve invested in your business.

When deciding how much you should pay yourself from your business, consider factors such as:

• Business Revenue and Cash Flow: Pay should align with your company’s cash flow — what it can afford after expenses.
• Ongoing Expenses and Future Growth Goals: Reinvesting profits may support long-term success.
• Industry Standards and Experience Level: Your background, education, and market role can guide a fair rate.
• Personal Financial Needs: Covering living costs without draining business funds keeps both sides sustainable.

There’s no one-size-fits-all formula for business owner compensation, but your payment should reflect both the value you provide and the strength of your company. Many owners start conservatively, increasing their pay as revenue grows and cash flow becomes more predictable. Regularly reviewing your financial statements ensures your compensation stays realistic and aligned with business performance. To help set a fair amount, you can reference salary benchmarking sites like PayScale, Indeed, and Glassdoor.

Tax Considerations

Taxes are one of the first things to think about when deciding how to pay yourself. The way you take money out of the business changes how and when you’ll pay tax on it.

• Salary: Taxes are taken out of each paycheck, the same as any employee. It keeps things straightforward but means you’ll be running payroll on a regular basis.
• Owner’s Draw: You don’t pay taxes when you take the money out. The income of the business gets taxed, whether at the corporate level or at the individual level.
• Sole Proprietors and Partners: You’ll owe self-employment tax on your share of the profits, even if you leave the money in the business.
• S and C Corporations: You’re required to pay yourself a reasonable wage, and those wages are taxed through payroll.

Know your business structure before deciding how to take money out. Consulting with your accountant ahead of time can prevent costly mistakes later.

Common Mistakes To Avoid

Even experienced entrepreneurs make mistakes when deciding how to pay themselves. Common errors include mixing business and personal finances, failing to set aside taxes, or skipping pay altogether — which can hurt profitability and personal finances.

To stay on track, create a clear system for paying yourself as a business owner — one that includes budgeting for taxes, keeping separate bank accounts, and regularly reviewing cash flow. If you’ve ever asked, “How do I pay myself as a business owner the right way?”, the answer starts with discipline, documentation, and consistency.