A question was posted on LinkedIn regarding how to pay the owner of a LLC: http://www.linkedin.com/answers/finance-accounting/accounting/FIN_ACC/149517-15002788. I posted an answer to this question and thought it might interest some readers here. This is a common question among business owners, so I’ll expand on the answer.
When a LLC is created, the tax treatment is determined. Payments to the owners of the business are made per the tax treatment.
Sole Proprietors (or LLC single member): No payroll is paid to the owner. The owner may take draws from the business.
Partnerships (or LLC taxed as Partnership): No payroll is paid to the owner. The owner may tak draws.
S Corporation (or LLC taxed as Corporation: Owner is paid via payroll. Typically, owners will take as small a payroll as possible to reduce payroll taxes and will also take distributions of equity. You must be careful to draw a "reasonable" salary to avoid IRS perils – it’s a good idea to talk to your CPA about the proper payroll amount and frequency/amounts of distributions.
C Corporations (or LLC taxed as C Corp): Owner is paid via payroll. Typically, owners will want to take a very large payroll to avoid the double taxation consequences of a c corp. The IRS is on to this trick as well, so care should be taken. Again, CPA advice is recommended.
~Kelly
