How to Pay Yourself as a Small Business Owner (Without Messing Up Your Books)
Paying yourself might seem like a simple task—you own the business, so you just take money out, right? Not so fast.
How you pay yourself depends on your business structure, and doing it incorrectly can lead to messy books, tax issues, and even legal problems. This guide breaks down how to pay yourself the right way, keep your finances clean, and stay compliant.
Why Paying Yourself Correctly Matters
Keeps personal and business finances separate
Helps maintain accurate bookkeeping
Prevents IRS red flags
Makes tax season easier and more predictable
Shows a clearer financial picture of your business
Step 1: Identify Your Business Structure
Your business type determines how you legally pay yourself. Here's how it breaks down:
Sole Proprietorship / Single-Member LLC
How to pay yourself: Owner’s draw
How it works: You transfer money from the business account to your personal account. It’s not considered payroll, so no taxes are withheld upfront.
Bookkeeping tip: Record the transaction as an "owner’s draw" to keep it separate from business expenses.
Partnership / Multi-Member LLC
How to pay yourself: Owner’s draw (based on your ownership percentage)
How it works: Similar to sole proprietors, but distributions are shared among partners.
Bookkeeping tip: Keep distributions well-documented and tied to each partner’s equity account.
S-Corporation or C-Corporation
How to pay yourself: Salary (plus possible dividends or distributions)
How it works: You must be on payroll and pay yourself a "reasonable salary" through payroll software. You can also take additional distributions from profits.
Bookkeeping tip: Use QuickBooks Payroll to handle taxes, withholdings, and year-end reporting.
Note: If you're taxed as an S-Corp, paying yourself only through draws (and not a salary) can trigger IRS scrutiny.
Step 2: Set Up a Business Bank Account (If You Haven’t Already)
Never pay yourself directly from client payments or deposit checks into your personal account. All income should go into your business bank account first.
Keeps your books clean
Makes tax prep much easier
Helps you qualify for financing or credit
Step 3: Determine a Consistent Pay Schedule
Paying yourself randomly can lead to cash flow problems and messy records. Decide on:
Weekly, biweekly, or monthly draw/salary
Amount or percentage based on profit
Holding back a portion for taxes (especially if you're not withholding)
Tip: Review your Profit & Loss report monthly to ensure you're not overpaying yourself or hurting your business cash flow.
Step 4: Track Owner Pay Properly in QuickBooks Online
How you record the payment matters just as much as how you make it. Here’s how:
For draws: Use the "Owner's Draw" equity account
For payroll: Set yourself up as an employee and run payroll through QBO or integrated software
Avoid: Categorizing your pay as a business expense. Owner pay is not a deductible expense for tax purposes.
Bonus: Set Aside Money for Taxes
You’ll need to cover self-employment taxes and income taxes, especially if you're not withholding through payroll.
Best practice: Set aside 25–30% of your income in a separate tax savings account.
Final Thoughts
Paying yourself shouldn’t be stressful, but it should be done right. When you understand your business structure, use the right method, and track everything properly, you avoid tax surprises and keep your books clean.
At DPP Bookkeeping, LLC, we help small business owners set up their books the right way from day one—including how to pay themselves confidently and compliantly.
Need help figuring out your owner's pay? Visit DPPBookkeeping.com to schedule a free consultation.