“You can get past the dead end. You can break through the ceiling. I did and so have countless others.”

How to Pay Yourself Through Your LLC


One of the first steps in starting a small practice is forming a limited liability company (LLC). If you want to start a small side practice, you must form an LLC. It really is not optional due to the asset protections they afford. It also makes your business look legitimate and professional. I discuss how to set up a business here and more information specifically about the LLC here.

Two questions I see time and time again over on the Facebook groups are “How do I pay myself?” and “How do taxes work?” It is pretty straightforward. It depends on the structure of the LLC.

You can structure the LLC as a sole proprietorship, S-corporation, or C-corporation.

If you form an LLC and do not elect to be treated as an S-corp or C-corp, you will be seen as a sole proprietorship in the eyes of the IRS. This is considered a disregarded entity. What this means is that you are not considered an employee of the LLC and all the profits just pass onto your personal tax return at the end of the year. This can cause trouble around tax time if you do not budget for it!

If you decide not to elect as an S-corp or C-corp, you will pay yourself as an “owner’s draw” or “distribution.” This process is simple. All you do is either write yourself a check, withdraw money from the bank, or transfer money over to another account. Make sure you document this distribution in your books for tax time. That is it!

Be careful about your taxes though. When you make a draw, it is not taxed until you report it. Therefore, if you are making owner’s draws frequently, you will have a large tax bill at the end of the year. This is why it is important to talk to your CPA about setting up a quarterly tax payment, so you do not get into trouble at the end of the year.

If you decide to file as an S-corp on the other hand, you will have to write yourself a legitimate paycheck. You will be considered a W-2 employee of the LLC. This means that every time you pay yourself, taxes will be taken out just like with a normal job. This is where you can be creative.

The IRS states that your salary should be reasonable and the average for your profession. Well, nurse practitioner salaries vary widely throughout the country. Therefore, it is hard to determine what is “reasonable.” I would pay myself $50 an hour. That is average in some parts of the country.

So, if you work 10 hours a week on your side practice, you will pay yourself $500 a week in salary. Well, what happens to the rest of the practices profit? It is distributed to you. Distributions are passed onto your federal income tax, but they are not subject to employment taxes (Social Security and Medicare). The amount taxed based off the distribution is to confusing to discuss in this article, so that is something you would need to discuss with your CPA. In general, you usually will save a lot of money on taxes utilizing an S-corp and distributing the profits after you have paid yourself a salary. After you pay yourself through a reasonable salary and distributed profits, you might want to keep some retained earnings in the bank to cover expenses for the next year. Unfortunately, that amount will be taxed as your personal income in an S-corp. That is one downside of this business structure.

If you decide to file as a C-corp, you will pay yourself as an employee and through dividend payments. Dividend payments aren’t subject to payroll taxes, but they are subject to income taxes. The main issue with a C-corp though, is that the businesses profit is taxed before its distributed to its owners. Therefore, it is a “double” taxed entity. The main benefit of a C-corp is that retained profits are only taxed at the flat 20% corporate tax rate, therefore you can keep money in the company at a lower tax rate than your higher income tax rate. You should avoid a C-corp unless you end up creating a massive enterprise and want the superior asset protections they offer. If you are operating small nurse practitioner ran side practices, you do not need to form a C-corp, don’t confuse yourself with this entity. Stick to an LLC or an LLC with an S-corp election. Paying yourself through these structures is easy and straight to the point.

Remember, that owner’s draws through a basic LLC that is treated as a sole proprietorship are subject to federal income tax and employment taxes (Social Security and Medicare). Distributions paid to you after your reasonable salary through an S-corp are subject to federal income tax but not employment taxes (Social Security and Medicare). That saves you a large sum of money a year, like 15% in taxes… Not to mention all the other tax perks owning a business provides. This is why I recommend utilizing the S-corp structure. That is what each of my operating LLCs are (men’s health clinic, medical cannabis, telemedicine practice). These generate significant revenue. My rental properties, on the other hand, are just titled under a basic LLC treated as a sole proprietorship as these do not generate that much income but are wealth building assets instead.

As always, consult with your CPA, legal professional or adviser before implementing any advice provided.

29 Responses

  1. Fantastic as usual. I need to talk to my CPA and elect as a S-corp for my LLC. I was hit hard last year on taxes….

  2. got a question, I recently just set up my LLC through the Wyoming company that you recommended, so thanks! anyway I was online to file for my federal EIN number, but it asks where is my “physical address” of business. I do put my state right and not Wyoming, right?

    1. That company also provides you a WY address, did you go with that package? If so, just use their address. If you did not, use whatever address you are operating out of.

      1. @justin- I know Ive seen this info in here about “the WY package” or the WY company that you recommend. Can you please point me in the direction for where to find this. Right now, in MN, trying to find a good CPA as well.

  3. Question..I was thinking of offering multiple services under one LLC. Would you recommend that or start multiple LLC’s?

    1. It really depends on what you are offering. I wouldn’t offer medical cannabis evaluations, weight loss, and IV infusion services under the same roof. If the services compliment each other, then yes. If they are completely different, then utilize different entities.

      1. Different entities = 2 seperate LLC and 2 seperate EIN? I have 2 seperate businesses. Just want to make sure I’m clear on this

  4. I’m about to start a full time job as a W-2 employee. Is it possible to start an LLC S corp and have them pay the LLC, then pay myself a reasonable salary from the LLC?

    1. You would not be able to do that as a W2 employee… A 1099 would be possible, but you would have to justify why you aren’t paying yourself the full amount they are paying you as it isn’t really a “business” vs just an LLC that is being paid for contract work. I would talk with your CPA but I don’t think that would fly.

  5. Im looking to start a telehealth business then go brick and mortar for weight loss and men’s health. I’m also going to start IV infusions with aesthetics-botox and fillers. Should these be two different entities or could I incorporate them all into one? Medical & Aesthetics….

    1. Stacy, I think all of those are very complimentary services. This is what a typical “wellness spa” type of practice does. I see no issue. The only hangup might be men’s health though. So instead of just men’s health, provide HRT to both sexes because a lot of your Botox clients will want HRT as well! Deliver what your patient wants!

  6. I have paid for a registered agent in Massachusetts for PLLC but they still require me to state a physical address for my business… say it cant be the address of the registered agent or a PO Box. So if I want to protect my home address now I need to also pay for a virtual office address?

    1. Megan,

      Yes, you need a virtual address if you do not want to have your home address listed on your LLC. That or use a friends/family members address. There is just little way around this.

  7. Justin
    You respond all questions. I am in the process to start mobil wound care.
    I have purchased your course, it is very informative. Thank you so much.

    From your blogs,
    1. -the first thing to start the business is get LLC, With Wyoming or Nevada ; okay
    2.:Then have article of organization and operating agreement:
    —–would you elaborate what is organizational article and operating agreement. I also read they can be obtained from goole. Can any templet works enough

    3.The next step is to apply for FEIN. this is clear

    1. Habtom,

      You are welcome! A pleasure to help 🙂

      Do not worry too much about the articles of organization or operating agreement. You will get this from the LLC creation service you use to form the LLC for you. I recommend the Wyoming LLC Attorney as it is affordable and quick. They form LLCs in all states. Here is a link: https://wyomingllcattorney.com/Blog/LLC-for-Nurse-Practitioner-NP?utm_source=elite%20np&utm_medium=partnership&utm_campaign=recommended

      If you use the above service, they can get the EIN for you as well, but I recommend not paying for it as it takes 5 minutes on the IRS website.

  8. Hi Justin,
    when you mentioned the States licenses from the article, do you mean I have to apply all of them in BOTH Wyoming and my home state? Thanks

    1. You don’t need a state license in WY to have an LLC there. An LLC is totally separate from your NP license.

  9. Hey Justin,
    Did you file as an s-corp with your Wyoming LLC because that is the one that manages the assets? Or the local state llc? Or both? My understanding is that the local LLC handles the business expenses but all the profits are funneled up the the Wyoming LLC, where you pay your “salary” and distribute extra income?

    1. Mike,

      Either or works. At the end of the day, all the profits just pass through to your personal tax return anyways. Just ensure one of them are an s-corp so you can take advantage of the tax savings.

  10. Hi Justin, do I need to open an LLC if I want to work as a 1099 nurse. I am currently working per diem and as a travel nurse. A CRNA I work with recommended creating an LLC to become a 1099 nurse? Or should I just get an EIN number until I start side businesses? Thanks so much

  11. hello
    I’m a NP being paid as a contractor on a 1099NEC. The company who pays me carries their own malpractice insurance which covers all NPs and PAs who work there.
    my CPA is recommending an LLC ASAP. my question is could that affect whether or not I am covered by the malpractice insurance I have through the employer?
    Which type of LLC would you recommended for a part time worker being paid on a 1099?
    finally, would I have to file anything with DOPL?

    1. It shouldn’t affect you from a malpractice standpoint. Just ask them to add your LLC to the policy though to be on the safe side.

      A standard LLC is fine.

      Don’t know what DOPL is.

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