Why It Matters: Personal Pay vs. Business Income

As a business owner, you don’t simply cut yourself a paycheck like a regular employee. You need to understand how your entity is taxed (LLC or S-Corp), what portion counts as income versus distributions, and what the IRS expects from your compensation model.

(Long-tail: how to pay yourself as an LLC or S-Corp in Texas)

How to Pay Yourself as a Texas LLC Owner

Single-Member LLC (Sole Proprietor Taxation)

If you are the only owner and haven’t elected S-Corp status, you’ll pay yourself with an owner’s draw:

• Transfer money from the business account to your personal account.
• No payroll setup required.
• Taxes are paid on your personal return via Schedule C (Form 1040).

CPA Tip: keep business and personal accounts separate for clean records. Need help setting up QuickBooks rules and categories? Explore our Bookkeeping Services.

Multi-Member LLC (Partnership Taxation)

Each owner typically receives distributions based on their ownership percentage. Payments are not “wages” but draws. You’ll receive a Schedule K-1 reporting your share of income; profits can be taxable even if you do not withdraw them.

(LSI: partnership distributions, K-1 income, multi-member LLC payment)

How to Pay Yourself as an S-Corp Owner in Texas

You Must Run Payroll

After electing S-Corp status (Form 2553), active owners must receive a reasonable salary. That salary is subject to Social Security and Medicare taxes, so you’ll need a payroll system (e.g., Gusto) or a CPA. In addition, you can take distributions, which are not subject to payroll taxes.

Example:

• Salary: $60,000 (W-2, taxed)
• Distribution: $40,000 (not subject to self-employment tax)
• Total compensation: $100,000

See the IRS guidance for elections: Form 2553.

Run payroll correctly and keep records tidy with our monthly bookkeeping, or get help choosing an entity via Entity Formation Services.

Owner’s Draw vs. Salary – Which Is Right for You?

(Long-tail: owner’s draw vs salary Texas small business)

How Much Should You Pay Yourself?

There’s no one-size-fits-all rule, but consider:

• Your business’s cash flow and runway.
• The market rate for your role.
• Your personal expenses and goals.
• IRS guidance on reasonable compensation.

Benchmarking tools: Use sources such as Glassdoor and Payscale, plus industry reports, to justify your S-Corp salary.

CPA Tip: document your reasoning and keep it with your payroll files in case of an IRS audit. For ongoing planning, pair with our Small Business Accounting.

Common Mistakes Business Owners Make

• Taking 100% of profits without planning for taxes.
• Failing to set up payroll after electing S-Corp.
• Mixing personal and business accounts.
• Paying personal bills directly from the business.
• Skipping quarterly estimated payments.

Unsure about quarterlies? Read our Quarterly Taxes in Texas guide or get help via Tax Preparation Services.

How Abbas CPA Helps Texas Business Owners Pay Themselves Right

• Choose the right entity for tax savings.
• Set up compliant payroll for S-Corps.
• Balance salary and distributions.
• Stay on top of IRS rules year-round.
• File accurate W-2s, K-1s, and 1120-S forms.

Whether you’re a solo LLC or a growing S-Corp, we’ll align compensation with your goals. Schedule a free consultation with our Houston CPA team.

Final Takeaways – How to Pay Yourself Properly

• LLC owners typically use an owner’s draw.
• S-Corp owners must run payroll and can take distributions.
• Tax planning is essential to maximize savings and avoid penalties.
• Working with a CPA keeps you compliant, organized, and profitable.