# How to Pay Yourself as an LLC in 2026 Source: https://www.youtube.com/watch?v=EW-oXAo1pfk Recap page: https://rapidrecap.app/video/EW-oXAo1pfk Generated: 2025-11-11T11:08:17.715+00:00 --- ## Quick Overview To properly pay yourself as an LLC owner in 2026 and avoid issues like double taxation or IRS scrutiny, you must first obtain an EIN, then open a dedicated business bank account, and finally take formal owner's draws/distributions while diligently documenting every transaction and setting aside funds for self-employment taxes (15.3% plus Medicare at 2.9%). **Key Points:** - LLC owners should take formal owner's draws, not fixed salaries, to separate personal and business finances. - Step 1 requires obtaining an Employer Identification Number (EIN) from the IRS. - Step 2 mandates opening a dedicated business bank account, which is non-negotiable for proper bookkeeping. - Step 3 involves taking the owner's draw via check, transfer, or cash, ensuring all business transactions run through the business account. - LLC owners must set aside 15.3% for self-employment taxes plus 2.9% for Medicare on their draws to avoid nasty surprises during tax season. - Proper documentation of draws (date, amount, purpose) is critical for bookkeeping and preparing for potential IRS audits. - The LLC structure offers limited liability protection, safeguarding personal assets (home, car, bank accounts) from business debts or lawsuits. ![Screenshot at 00:26: The initial step for correctly paying yourself as an LLC owner is displayed, showing the requirement to 'GET AN EIN' \(Employer Identification Number\) from the IRS, a foundational step for legal separation of finances.](https://ss.rapidrecap.app/screens/EW-oXAo1pfk/00-00-26.png) **Context:** This video provides a step-by-step guide for Limited Liability Company (LLC) owners on the correct procedure for paying themselves, specifically looking ahead to 2026 tax considerations. The presenter emphasizes the importance of separating personal and business finances to maintain liability protection and ensure tax compliance, contrasting the LLC structure with C Corporations regarding double taxation. ## Detailed Analysis The video outlines a three-step process for LLC owners to pay themselves correctly in anticipation of 2026 regulations, aiming to maximize flexibility, maintain liability protection, and ensure tax compliance. Step 1 is securing an EIN (Employer Identification Number) from the IRS (1:20). Step 2 is opening a dedicated business bank account, which the speaker stresses is non-negotiable (1:42). All business transactions must flow through this account to maintain clear separation from personal finances (2:04). Step 3 is taking the actual owner's draw, which can be done via check, bank transfer, or cash, ensuring every transfer is meticulously documented (3:08). A crucial caution is highlighted: owners must set aside money for self-employment taxes, which total 15.3% (Social Security) plus 2.9% (Medicare) on the income taken as draws, avoiding sudden tax bills (3:54). The primary benefit of the LLC structure is limited liability protection, which shields personal assets like homes and cars from business debts or lawsuits (6:02). Finally, the speaker notes that LLCs can elect S-Corp taxation status, which may reduce self-employment tax burdens once profits reach a certain level, offering significant tax savings compared to operating as a standard disregarded entity (5:42). ### Owner Compensation Steps - Step 1: Get an EIN - Step 2: Open a Business Bank Account - Step 3: Take Your Owner's Draw ### Owner's Draw Mechanics - Transfer funds from the business account to the personal bank account using a check, transfer, or cash - Document every transaction meticulously for accurate bookkeeping and audit defense ### Tax Implications for LLC Owners - Self-employment tax is 15.3% plus 2.9% for Medicare on draws - Profits taken as distributions are subject to these taxes, unlike C-Corps which face double taxation ### Key Benefits of LLC Structure - Limited liability protects personal assets from business debts and lawsuits - Flexibility allows owners to take larger draws during profitable months and smaller ones during lean months ### Advanced Tax Strategy - Single-member LLC owners can elect S-Corp taxation status to potentially reduce self-employment tax liability once profits reach a high enough threshold ![Screenshot at 00:01: Visual representation of freedom and flexibility granted by an LLC, contrasting with being shackled.](https://ss.rapidrecap.app/screens/EW-oXAo1pfk/00-00-01.png) ![Screenshot at 00:05: Warning graphic highlighting a major pitfall: 'NOT KNOWING HOW TO PAY YOURSELF CORRECTLY'.](https://ss.rapidrecap.app/screens/EW-oXAo1pfk/00-00-05.png) ![Screenshot at 01:20: Step 1 graphic emphasizing the necessity to 'GET AN EIN' \(Employer Identification Number\) from the IRS.](https://ss.rapidrecap.app/screens/EW-oXAo1pfk/00-01-20.png) ![Screenshot at 01:42: Step 2 graphic showing the requirement to 'OPEN A BUSINESS BANK ACCOUNT' using the owner's EIN.](https://ss.rapidrecap.app/screens/EW-oXAo1pfk/00-01-42.png) ![Screenshot at 02:09: Step 3 graphic illustrating the process: Take your owner's draw from the business to your personal account.](https://ss.rapidrecap.app/screens/EW-oXAo1pfk/00-02-09.png) ![Screenshot at 03:55: Visual breakdown of self-employment tax rates: 15.3% \(Self-Employment Tax\) + 2.9% \(Medicare\) applying to owner's draws.](https://ss.rapidrecap.app/screens/EW-oXAo1pfk/00-03-55.png) ![Screenshot at 06:07: Illustration of the core benefit: Limited liability protection shielding personal assets from business lawsuits or debt.](https://ss.rapidrecap.app/screens/EW-oXAo1pfk/00-06-07.png) ![Screenshot at 07:21: Graphic summarizing the financial benefit of proper structuring: saving tens of thousands of dollars annually in taxes.](https://ss.rapidrecap.app/screens/EW-oXAo1pfk/00-07-21.png)