The answer depends entirely on how your firm is structured. Different entity types have different rules for how owners take money out of the business, and getting it wrong can create tax problems or trigger IRS attention.

If you’re a sole proprietor or single-member LLC, you take owner draws. There is no payroll involved. The business profit flows through to your personal tax return on Schedule C, and you pay self-employment tax on all of it. That’s 15.3% up to the Social Security wage base, then 2.9% above that. You can pull money out whenever you want, but those draws aren’t a deductible business expense. They’re just you moving money from one pocket to another.

If you’re in a multi-member LLC or partnership, owners typically receive guaranteed payments and distributions. Guaranteed payments function like a salary in that they’re paid regardless of profitability and are deductible to the partnership. Distributions come from profits after expenses. Both flow through to your K-1 and personal return, and self-employment tax applies to guaranteed payments and your distributive share of business income.

The structure most solo attorneys and consultants eventually land on is the S-Corp, or more specifically an LLC or PLLC with an S-Corp tax election. With an S-Corp, you must pay yourself a reasonable salary through payroll with a W-2, tax withholding, and employer payroll taxes. After that, remaining profits can be taken as shareholder distributions that are not subject to self-employment tax. That’s the entire point of the S-Corp structure for professional service firms.

Here’s the math. If your firm nets $150,000 and you set a reasonable salary at $80,000, you avoid self-employment tax on the remaining $70,000 in distributions. At 15.3%, that’s roughly $10,700 in annual savings. The break-even point where the S-Corp election starts making financial sense is typically around $50,000 to $75,000 in net earnings. Below that, the added cost of running payroll and filing a separate S-Corp return eats into whatever you’d save.

If you have a Virginia PLLC, it follows the same tax rules as a regular LLC. The “professional” designation affects liability protection and who can be members, not how you compensate yourself. A PLLC taxed as a sole proprietorship works like a sole prop. A PLLC with an S-Corp election works like an S-Corp.

One thing the IRS watches closely is S-Corp owners who pay themselves too little in salary to maximize tax-free distributions. “Reasonable” means what someone with your qualifications and experience would earn doing similar work in your market. An attorney billing $300 per hour or a consultant with 20 years of experience cannot justify a $30,000 salary. The IRS has reclassified distributions as wages in audit situations, which means back payroll taxes plus penalties and interest.

Getting the structure right from the start matters. If you’re not sure whether your current setup is costing you money or if an S-Corp election makes sense for your situation, that’s exactly the kind of question our Northern Virginia small business bookkeeping services team helps clients work through. The right answer is different for every firm, and it changes as your income grows.