Table of Contents
- Why Paying Yourself Matters
- Understanding Your Freelance Business Structure
- Setting Up Your Business Bank Account
- How to Pay Yourself: Owner Draws and Salaries
- How Much Should You Pay Yourself?
- Don’t Forget Estimated Taxes
- Paying Yourself from an S Corp
- FAQ
- Conclusion
- References and Further Reading
Why Paying Yourself Matters
Did you know that nearly 60% of freelancers struggle with managing their own pay, according to a 2024 Upwork report? As a freelancer, you’re not just the talent—you’re also the finance department. Understanding how to pay yourself as a freelancer is crucial for your financial health, tax compliance, and peace of mind. This guide breaks down the process, so you can focus on what you do best—your work.
Understanding Your Freelance Business Structure
Your business structure determines how you pay yourself and how you’re taxed. Most freelancers in the US and UK operate as sole proprietors or single-member LLCs. Here’s what that means:
- Sole Proprietor: You and your business are legally the same. All profits are yours, and you report income on your personal tax return.
- Single-Member LLC: Offers some legal protection, but for tax purposes, you’re usually treated like a sole proprietor unless you elect corporate taxation.
For both, you don’t get a traditional paycheck. Instead, you take what’s called an owner’s draw.
Tax Forms You’ll Need
- US: IRS Form 1040 and Schedule C (Profit or Loss from Business)
- UK: Self Assessment tax return (SA100) and supplementary pages (SA103S or SA103F)
For more on business structures, see our guide to freelancer business entities.
Setting Up Your Business Bank Account
Mixing business and personal finances is a recipe for confusion—and potential tax headaches. Open a dedicated business checking account. Here’s why:
- Clear record-keeping: Makes tracking income and expenses simple.
- Tax compliance: Easier to prove business expenses if audited.
- Professionalism: Clients take you more seriously.
If you’re a single-member LLC, open the account in your LLC’s name to protect your limited liability status.
How to Pay Yourself: Owner Draws and Salaries
For most freelancers, paying yourself is as simple as transferring money from your business account to your personal account. This is called an owner’s draw.
How to Make an Owner’s Draw
- Deposit all client payments into your business account.
- Pay business expenses from this account.
- Transfer your chosen amount to your personal account—weekly, monthly, or as needed.
Pro tip: Set up automatic transfers to ensure you pay yourself regularly.
Is an Owner’s Draw Taxable?
No. You pay tax on your business’s net profit, not on the amount you draw. The draw itself isn’t reported as income or expense on your tax return. For accounting, keep a record of each draw for your own tracking.
What About S Corp Owners?
If you’ve elected S Corp status, you must pay yourself a reasonable salary through payroll, with taxes withheld. You can also take additional distributions, which aren’t subject to self-employment tax. Learn more about S Corp salaries here.
How Much Should You Pay Yourself?
There’s no IRS rule on how much or how often you pay yourself as a sole proprietor. However, smart freelancers follow these steps:
- Calculate your average monthly business income.
- Subtract business expenses and estimated taxes.
- Pay yourself a set amount, leaving enough for future expenses and taxes.
Some freelancers pay themselves a fixed monthly “salary.” Others take variable draws based on cash flow. The key is consistency and planning.
Example: How Owner’s Draws Work
Let’s say you earn $60,000 in freelance profit this year. You transfer $40,000 to your personal account over the year. You’ll still pay tax on the full $60,000, regardless of how much you draw.
Don’t Forget Estimated Taxes
Freelancers must pay estimated taxes quarterly. These cover your income tax and self-employment tax (US) or National Insurance (UK). Missing payments can lead to penalties.
| Quarter | US Due Date | UK Due Date |
|---|---|---|
| Q1 | April 15 | January 31 (previous tax year) |
| Q2 | June 15 | July 31 (payment on account) |
| Q3 | September 15 | — |
| Q4 | January 15 (following year) | — |
Set aside 25-50% of your income for taxes, depending on your tax bracket and deductions. Many freelancers use a separate savings account for tax money.
Paying Yourself from an S Corp
If you operate as an S Corp (US), you must:
- Pay yourself a reasonable salary via payroll (with tax withholding).
- Take additional distributions as profits allow.
This structure can save on self-employment taxes, but comes with more paperwork. Consult a tax professional to see if it’s right for you.
FAQ
How often should I pay myself as a freelancer?
You can pay yourself as often as you like—weekly, monthly, or as needed. Consistency helps with budgeting and tax planning.
Do I need to pay myself a salary as a sole proprietor?
No. Sole proprietors take owner’s draws, not salaries. Only S Corp owners are required to pay themselves a salary.
Is my owner’s draw a business expense?
No. Owner’s draws are not deductible business expenses. They’re simply transfers of profit to your personal account.
What if I don’t separate my business and personal accounts?
This can make tax time difficult and may risk your legal protections (for LLCs). Always keep accounts separate.
How do I calculate how much to set aside for taxes?
Estimate your annual profit, then set aside 25-50% for taxes, depending on your location and deductions. Use online calculators or consult a tax pro.
Conclusion
Paying yourself as a freelancer doesn’t have to be complicated. Set up a business account, track your income and expenses, and make regular owner’s draws. Don’t forget to plan for taxes and consult a professional for complex situations. For more tips, explore our freelancer financial tools and tax guides. Ready to take control of your freelance finances? Subscribe to our newsletter for the latest advice and tools.
References and Further Reading
- Upwork: Freelance Forward 2024.
- IRS: Self-Employed Individuals Tax Center.
- GOV.UK: Set up as a sole trader.
- CNBC: How to pay yourself as a small business owner.
- Bench: How to Pay Yourself as a Business Owner.
- QuickBooks: How to Pay Yourself as a Small Business Owner.
- Collective: How to Pay Yourself as a Freelancer.
- FreshBooks: How to Pay Yourself as a Freelancer.
- IRS: About Schedule C (Form 1040).
- GOV.UK: Self Assessment tax returns.
- Investopedia: Pay Yourself First.
Last updated: July 2025
