Llc Salary Vs Distribution
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FAQ
An LLC Distribution is when Members (owners) of an LLC take money out of the LLC bank account and issue profits to themselves. Instead of receiving income in the form of a W2 salary (aka wages), the LLC Members ?pay themselves? via LLC Distributions.
In short, "owner's draw" is the term used for business structures that have individual or split ownership (as in a sole proprietorship or partnership), while "distribution" is the term used for cash distributions made to owners of a corporation.
A reasonable salary is a must Evading taxes by disguising your salary as a distribution could get you serious penalties, on top of a big back-tax bill, if an IRS audit recharacterizes your S corporation income as salary. You could pay tax penalties of up to 100%, plus negligence penalties.
If you own an S-Corp, the ideal tax situation is to pay yourself $0 salary and the remaining balance in distribution. This avoids paying the 15.3% in self-employment taxes. However, you are still liable to pay state income tax, federal income tax, franchise tax, etc.
By default, LLC profits are split ing to ownership percentage?if you own 50% of the LLC, you get 50% of the profits. However, you can override your state's default requirements for splitting LLC profits by making another arrangement in your operating agreement.
