Never pay your rent from your business bank account.
It sounds obvious, right? But countless solopreneurs and small business owners are making this mistake — and it’s making their finances way messier than they need to be.

Whether you’re a freelancer, sole proprietor, or LLC owner, figuring out how to actually pay yourself can feel confusing. Do you just take money out? Should you run payroll? What changes if you’re an S Corp?

This guide breaks it all down — simply, clearly, and with zero fluff. You’ll learn how to pay yourself the right way based on your business structure, avoid the #1 mistake that trips up most entrepreneurs, and finally feel like the boss you are.

How to Pay Yourself as a Business Owner: The Basics

Let’s start with a reality check: your business bank account is not your personal piggy bank.

It’s tempting to treat it that way — a client pays you, the money hits your account, and you Venmo your landlord. Easy, right? But blending your personal and business finances creates chaos — especially at tax time.

So what’s the right way to pay yourself? It depends on your business structure. Let’s walk through each one.

Sole Proprietor: Pay Yourself with an Owner’s Draw

If you haven’t registered a formal business entity with your state, you’re likely operating as a sole proprietor. That means, legally and financially, you are the business — and the IRS sees it that way too.

How to pay yourself:

– Use an owner’s draw — a simple transfer from your business bank account to your personal account.
– No need to run payroll unless you hire others.
– Owner’s draws aren’t considered a business deduction, so it won’t reduce your business profit. You’ll still pay income tax and self-employment tax on the profit of your business 

Pro tip: Even if you don’t need a separate business bank account, open one. It makes tax time smoother, keeps things organized, and helps you see how your business is actually performing.

Single-Member LLC: Still Use an Owner’s Draw

If you’ve formed an LLC and you’re the only owner, congrats — you’ve created a legal distinction between you and your business. But from a tax standpoint? The IRS still treats you like a sole proprietor (unless you elect S Corp status).

How to pay yourself:

– Same deal — use an owner’s draw.
– No payroll required (unless you hire employees other than yourself).
– You pay income and self-employment taxes on your profit at tax time.

Quick tip: Just because it’s your business doesn’t mean you should drain the bank account. Pay yourself what you need and leave enough to cover expenses, taxes, and growth.

S Corporation: You Need A Reasonable Salary + Distributions

Here’s where things change — and where the tax savings start.

If your LLC has elected to be taxed as an S Corporation, the IRS expects you to pay yourself a reasonable salary. You’ll also be able to take distributions, which are not subject to self-employment tax.

How to pay yourself as an S Corp owner:

– Step 1: Determine a reasonable salary. There’s no strict IRS formula, but look at what others in your industry make, your role, and whether you’re full-time or part-time.

– Step 2: Run payroll. Use payroll software (like Gusto) to pay yourself a W-2 salary. The software will handle withholdings and payroll tax filings.

– Step 3: Take distributions — additional profits transferred from your business to your personal account. These aren’t subject to self-employment tax.

Example:

Let’s say your S Corp makes $100,000 in profit.
You pay yourself a $50,000 salary → taxed like a regular W-2 job.
You take $50,000 in distributions → no self-employment tax but you still pay income tax.

Shifting a portion of your income is how you can save thousands in self-employment taxes. 

Caution: It may be tempting to pay yourself as little as possible to save more, but if the IRS thinks your salary is too low, they can reclassify distributions as wages — meaning back taxes and penalties. Don’t cut corners here.

The #1 Mistake Business Owners Make: Mixing Finances

Here’s the most common — and costly — mistake new business owners make: mixing personal and business money.

You swipe the same card for groceries and office supplies. You Venmo yourself rent. It all gets jumbled.

This leads to:

• Confusing books
  
• Inaccurate tax returns
  
• Missed deductions
  
• Stressful audits
  
• An accountant who secretly hates you
  

Worst of all? You have no clue whether your business is actually making money.

How to Pay Yourself the Right Way (In 5 Steps)

Step 1: Open a Business Bank Account
If you don’t already have one, do this today. It’s the foundation for clean books, simple taxes, and clear paychecks.

Step 2: Know Your Business Structure

• Sole Proprietor or Single-Member LLC → Take an owner’s draw.
  
• S Corp → Run payroll + take distributions.
  

Step 3: Create a Pay Schedule
Decide how often you’ll pay yourself: weekly, biweekly, monthly — whatever works. Having a routine makes your finances more predictable.

Step 4: Run the Numbers Before Paying Yourself
Ask yourself:

• What did my business earn this month?
  
• What are my expenses?
  
• What do I owe in taxes?
  
• What’s a reasonable paycheck?
  

Try this basic formula:

• 50% → Pay yourself
  
• 30% → Save for taxes
  
• 20% → Reinvest in your business
  

It’s not perfect, but it’s a solid starting point.

Step 5: Use Payroll Software (for S Corps)
If you’re an S Corp, you must run formal payroll. Use tools like Gusto, QuickBooks Payroll, or Collective to stay compliant and save time. These platforms handle everything from paystubs to quarterly filings.

Why This All Matters

When you pay yourself the right way:

• You stop winging it.
  
• You know your business is profitable.
  
• You’re ready for tax season (no panic attacks).
  
• You can apply for loans, mortgages, or even sell your business down the line — with clean, professional books.
  

In short? You go from freelancer chaos to boss-level confidence.

TL;DR: How to Pay Yourself as a Business Owner

• Sole Proprietor or Single-Member LLC → Take owner’s draws. No payroll needed.
  
• S Corp → Pay yourself a reasonable salary through payroll + take distributions.
  
• Do your best to keep personal and business money separate.
  
• Set a regular pay schedule.
  
• Save for taxes. Track everything.
  
• Use payroll software if you’re an S Corp.
  

FAQ: How to Pay Yourself as a Business Owner

Q: Can I pay myself by just transferring money from my business account?
A: Yes — if you’re a sole proprietor or single-member LLC, that’s exactly how it works. It’s called an owner’s draw. If you’ve elected S Corp status, you can still take owners draw but also need a reasonable salary. 

Q: Do I need to run payroll for myself?
A: Only if you’re an S Corp. Sole proprietors and single-member LLCs don’t need to run payroll unless they have employees.

Q: What counts as a reasonable salary for an S Corp?
A: The IRS doesn’t give a formula, but look at what people in your role and industry typically earn. Consider your duties, time commitment, and experience.

Q: Can I take all the money out of my business account?
A: You can, but you shouldn’t. Always leave enough to cover taxes, operating costs, and future growth.

Q: What happens if I mix personal and business funds?
A: You’ll create bookkeeping chaos, risk audit penalties, and potentially lose liability protection (especially if you’re an LLC or S Corp). Don’t do it.

Conclusion

Paying yourself isn’t just about getting money into your personal bank account — it’s about creating a system that protects your business, simplifies taxes, and builds long-term success.

Whether you’re a sole proprietor just getting started or an S Corp looking for tax savings, setting up the right process now saves you time, stress, and money down the road.

Want help figuring out the best way to pay yourself and manage your business finances? That’s what we do. Let’s chat — your future self will thank you.