Dallas-Fort Worth Real Estate Investor Club

If you form an LLC, how do you pay yourself?

  • 24 Sep 2012 7:37 AM
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    Message # 1081505
    Michael Mixon
    One thing I've always been curious about, is how an investor brings the money home.  If you open up an LLC, you're supposed to keep business money separate from your personal money correct?  So what's the best way to do, and document that?  Do you guys pay yourself salaries?  Or pay yourself a percentage of profits from each deal?

    I'm considering paying myself a salary.  At first it will be just enough to cover my monthly expenses.  That way even if I go a period of time without closing a deal, I'll still have money in the business account to pay for advertising and such.  This way I can keep it all separate, and keep a better eye on the profitability of my LLC.  As I become more successful I'd adjust the salary up to match.  

    My biggest worry it taxes.  Not that I'm attempting to not pay them, but I want to make sure and do it correctly.  I know you guys aren't tax guys, and I'm going to have to talk to an accountant at some point, but I'm looking for some general guidelines to help me plan my business model.

    Thank you in advance,
    Mike.
  • 24 Sep 2012 5:52 PM
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    Reply # 1082042 on 1081505
    Willie Karashin
    Michael,
    Granted I've only had it open for a year, but I think the easiest way to do this is to set up a bank account under the name of your LLC. It's fairly easy to do if you have all of your company formation paperwork and an EIN. Then, when you have any business transactions, only use that business account. This way, you can double check your expenses or you can wait until your monthly statement and download the data into Excel or the accounting software of your choice.
    It's not only easier for accounting purposes, it's very helpful if the taxman comes knocking and asking about business vs personal expenses.
  • 25 Sep 2012 8:35 AM
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    Reply # 1082734 on 1081505
    Robin Carriger (Administrator)

    As William said, open a separate bank account for your Real Estate business.  In my case, my living expenses are paid from a source of income outside of Real Estate which allows me to use Real Estate as a retirement vehicle.  Therefore, instead of taking a salary from my Real Estate business, I simply use the Real Estate profits to do more Real Estate deals.  FYI, it's not on the calendar yet, but Attorney, Milt Colegrove, is scheduled to speak at our regular meeting on October 6, 2012 about asset protection.  I'm really looking forward to it.  His website is www.meyercolegrovelaw.com.
  • 25 Sep 2012 3:55 PM
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    Reply # 1083135 on 1081505
    Milton Colegrove
    From a legal perspective and not a tax perspective there are three ways an owner can remove money from their LLC. The first is by paying yourself a salary. The second is by taking distributions. A distribution comes from monies left after all expenses and any debt obligations are paid. The company agreement you should have in place will state how often distributions should or can be made. Finally, the third way is if you personally loaned money to your LLC. You can then pay yourself back principal with interest. Always make sure you visit with your accountant to determine which method or combination of methods would be best for you.
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