How to Pay Yourself in a Florida Limited Liability Company

How to Pay Yourself in a Florida Limited Liability Company

How to Pay Yourself in a Florida Limited Liability Company

So, you’ve finally formed your limited liability company down here in Florida – congratulations! However, unless you’re a secret billionaire, then chances are that you’re still going to need some form of income. Here’s how you can pay yourself through your newly formed LLC. We’ve presented several options so that you can decide on what’s best for you and the needs of your business. Feel free to reach out to us if you need help reaching your decision.

Earning Wages as an Employee

The first of your options is to pay yourself like any other employee at your limited liability company. This provides a consistent stream of income, as your compensation is paid out in regular paychecks instead of infrequent lump sums. The IRS considers this to be an operating expense like any other employee wages deducted from the limited liability company’s profits.

When paying yourself as an employee, you need to file IRS Form W-4 to determine how much payroll is deducted from each paycheck that you receive. The limited liability company will pay you just like any other W-2 employee, including the necessary income and employment taxes. You still need to pay income tax on those wages, too.

It’s also important to keep in mind that you must take an active role in business operations in order to pay yourself as an employee of the limited liability company. In other words, you can’t just be an owner soaking up that sweet, passive income – you’ll need to have actual responsibilities and job duties. On top of that, the wage that you are paying yourself must be considered “reasonable” by the IRS. This means that your salary must be within the norms of your industry. It’s perfectly legal to grant bonuses to LLC Members who are also employees of the business. However, you must ensure that you stay within reasonable bounds.

Something else to remember: if the limited liability company has more than one Member and all Members share equal responsibility for the business, then you will need to either pay a salary to all the Members or none at all.

Receiving Distributions from the LLC’s Profits

Another option available to Florida limited liability company owners is to take the distributions directly from the LLC’s profits at the end of each year. Each Member receives distributions based upon their ownership percentage. In other words, if you’re the sole Member, you get to take home the full share. However, if you hold 70% ownership and another Member holds 30%, then the profits are divided the same way.

Income taxes are applied to the distributions made for Single Member LLCs when using this method. You’ll also report your limited liability company’s profits and losses by filing Schedule C (also known as IRS Form 1040) along with your own personal tax return. Multi-Member LLCs are treated as partnerships. In that case, each Member will file their own report of their share of the profits, which they will then pay income tax on. The LLC reports its division of profits to the IRS by filing Form 1065.

If a single, yearly payment won’t suffice, then you can stagger the payments based on the expected end-year profits. These payments are deducted from the total actual profit at the end of the year. For example, if you wanted monthly distributions, you would divide the total profits by twelve to find your payout.

One more thing – you don’t have to make the choice between taking a salary or end-of-year distributions. Members collecting paychecks are still entitled to distributions.

Working as an Independent Contractor for the LLC

Another avenue open to you is to hire yourself as an independent contractor for your Florida limited liability company. Unfortunately, this method has fewer perks and advantages to it when compared to other options. If you do decide to be an independent contractor for your LLC, then you will file IRS Form W-9 with your business which will then file IRS Form 1099-MISC at year’s end. It is worth noting, however, that this leaves you responsible for paying your own self-employment taxes.

Taking Nothing at All

Your final option is to take none of these options at all. There is no requirement for an LLC to pay its Members. It’s perfectly acceptable to leave your business’s coffers untouched so that they can grow. This doesn’t mean that you won’t have to pay income tax on profits earned. Instead, those profits pass on to your personal tax return.

When launching a business, it’s crucial that you have a solid foundation that will encourage growth. As a firm of entrepreneurs ourselves, we know how to start businesses off the right way. Hiring an attorney reduces the chance that your company will run into trouble down the line. We work hard to equip you with the information and documents that you need for success. For assistance with starting your business or growing the one that you already have, visit our Service Page or contact us by calling (727) 279-5037.

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FL Patel Law PLLC is a boutique business law firm dedicated to entrepreneurs and companies.

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