Owner Draws vs Distributions vs Payroll NJ (Clarity Chart)

Owner Draws vs Distributions vs Payroll NJ — How to Pay Yourself Right

How you pay yourself affects your taxes, compliance, and audit risk. Here’s how owner draws vs distributions vs payroll NJ differ—and how to get it right.

Sole Proprietors & Single-Member LLCs

Use owner draws—not payroll. You don’t withhold taxes; instead, you pay income and self-employment tax on profits.

Multi-Member LLCs

Take distributions and possibly guaranteed payments. Partners are not W-2 employees.

S-Corporations

You’re both owner and employee. You must pay yourself a reasonable salary via payroll, then you can take tax-advantaged distributions.

The Clarity Chart

Entity Type	Pay Method	Payroll?	Taxes Apply?	Notes
Sole Prop	Draw	❌	Income + SE Tax	No W-2 required
LLC (multi)	Distribution	❌	K-1 + SE Tax	May have guaranteed payments
S-Corp	W-2 + Distribution	✅	Payroll + Income	Must pay reasonable wage

CPA Tip:

Mixing these can cause IRS red flags. Document your method and review it annually with your CPA.

Not Sure Which Applies to You?

Let Gregory Monaco, CPA LLC in Livingston, NJ help determine the most tax-efficient way to pay yourself. We’ll model salary vs distribution trade-offs, handle payroll setup, and align everything with your tax filings.

→ Book a Free Consultation • Tax Preparation & Planning • Advisory

Gregory Monaco, CPA | Livingston NJ (serving NJ + virtual nationwide)