If you’re a small business owner, especially someone with an LLC or sole proprietorship, you’ve probably asked this at least once: “Am I getting taxed twice when I take money out of my business?”
It’s a common fear—and a totally understandable one—but here’s the truth: you’re not getting taxed twice. The confusion stems from how different types of businesses report and pay taxes. Let’s clear this up with a real-world example.
Mike Thought He Was Getting Double-Taxed
Mike is a graphic designer who owns a single-member LLC. Like most small business owners, he’s taxed as a sole proprietor. When we first met, he was frustrated. “I made $100,000, paid my taxes, and now I’m being taxed again just for paying myself?”
This is where I stepped in to explain how LLC owner taxes really work.
How Taxes Work for LLC and Sole Proprietors
Here’s the deal: if you’re a sole proprietor or operate a single-member LLC, you’re taxed on your net business income—that’s your revenue minus expenses. You report that income on Schedule C of your personal tax return, and that’s where you pay your income tax and self-employment tax.
When you move money from your business to your personal account—what’s called an owner’s draw—you are not taxed again. You already paid taxes on that income when it was earned. This is one of the biggest business tax myths out there.
What About S Corps?
Now, if you’ve elected to be taxed as an S corp, the system is a bit different—but the myth of being taxed twice still doesn’t apply.
As an S corp owner, you pay yourself a “reasonable salary” (which is taxed via payroll), and then take distributions from your remaining profit. These S corp distributions are not subject to payroll taxes and are not taxed again, as long as the company already reported and paid the appropriate tax on its income.
When Does Double Taxation Happen?
True double taxation typically only applies to C corporations, where the business pays corporate income tax on its profits, and then shareholders pay personal income tax on dividends. Even then, with smart planning, this can be minimized or avoided.
But if you’re a business owner operating as a sole proprietor, LLC, or even an S corp—you are not being taxed twice for taking money out of your business.
Why This Matters
Understanding how taxes work for businesses is essential for making smart financial decisions. If you’re still unsure about whether you’re handling things the right way, don’t stay in the dark. Talk to a professional who can explain your specific tax situation—because peace of mind is worth more than any guesswork.
If you’ve been worried about getting taxed just for paying yourself, take a breath. You’re likely doing it right—and now you know the facts.
