pay before profit

Can I pay myself before computing profit, which lowers tax liability?

Answer

As an LLC taxed as a partnership (or a single member LLC), "paying" yourself does not reduce your tax liability.

Payments to yourself do not constitute a business expense deduction for your LLC.

Instead, your LLC calculated its profit based on revenues - permitted deductible expenses. You pay tax on that profit. The LLC does not pay taxes itself, the tax liability passes-through to you--hence, the name "pass-through entity". Partnerships are taxed similarly.

As the owner of the LLC, you can (and should) take distributions of your LLC's profits.

Now, in the situation of a corporation, it's true that if you are on the payroll, your wages are deductible for the corporation. However, you are personally liable for taxes on your wages. Plus, the corporation pays tax on its profit (minus your wages and other expenses). Then, if there is anything left over, and the corporation distributes dividends to you, then you are taxed on those dividends as well.

Currently, the tax rate on dividends is 15%. However, prior to the Bush tax cuts, the tax rate on dividends was 39.6% (maximum). If Obama is elected President, he has indicated that he'd like to reverse the Bush tax cuts, which would make the corporate double tax much more onerous (35% tax on corporate profits, then a 39.6% tax on dividend distributions to owners).